Surveillance: Deutsche Bank Cuts, Restructures

any bank has a ton of debt. Filippo already with their messes with us UH today their senior credit analyst, Filippo, when you sort out the glide pass of all of these dynamics, particularly over time out to two thousand twenty two, what's your enthusiasm for this set of a now expends?

Can they do it? Yeah? Well, Tom, as you said correctly, it's it's quite interesting because this time and so it's a restructor who is not going to be financed by the shareholders, as you can expect given the thorough state of the where the equity of Dutch Bank is trading. This is it financed by internal resources. Essentially is financed by reducing the capital capital target or the bank, and

I think it's the idea of DOTCH. A bank is to go to the regulator and say, listener with the risk in the balance sheet of the of the group and the four So we think if you can execute on that strategy, then we're gonna bud less of a problem to you and before we can lower the capital target. I think it's a little bit of an ambitious plan.

But the least we can say that the measurement has listened to the Sharold because Charolder one anyday a the bank to undergo a regime to reduce the balance sheet at the same time not to tap the shelder because such a banquet as raised thirty billion euros in twenty ten. Well, let's talk about how likely that is. How do you fund the bill which is seven point four billion euros by twenty two that's the restructuring bill FELLI for as

you know, with internal resources alone. What's your judgment called this morning? Do you think that's achievable? UM? I think so yeah. If you look at the seven point four billion is actually only five point four because that's all in termo car because there is an element of right down on the decade the fair taxas set but without going to match into the technicalities. I think it's of course also they're not going to pay dividend for the

full year twenty twenty nineteen and twenty twenty. They reducing effectively the city one ratio by more than under a business point because it was thirteen point seven now they acknowledge will go as as twelve point five billion. I think that's the most important things is that there won't be any say, attrition from the on the revenue side,

because it's good to control the cost base. That they want to reduce the cost base by six billion by two But of course so these uh discount a not a material deteriation on the revenue on the revision side of the basiness, which of course it is difficult when

you're closing all the equity business outside. Yeah, it's the difficulty with this bank has always over the last five, six, nine, maybe even ten years, was the self fulfilling spiral downwards that they try and retrench, but then the revenue growth never comes and we just chase everything lower. Can we cut that death spiral with this turnaround plan. I think it's a possibility. I think that's all we have to say that the recognized to the to the new measurement

that finned that. So they put in the awards where the the mounts and I mean they attempting this, uh, them backing very this and very ambition restructurally. It's a very rough with the first one and probably fifteen years that a bank is undergoing such a deep restructurally, and I think it's uh, it's probably the way to go for them. And time we tell whether they can achieve the starget. Let's let's um step back and they ask what is it in the bad bank? I mean, you've

got a wonderfully detailed note Filippo. Do do we really know what's in the bad bank? Can we actually price it? Now? That's a very good question. Actually it is quite key or the afternoon strategy up in the management dissolving with investor on the world. I think I saw it's allowed in this so called bad bank seventy four billion or our w A and I think that saw a lot is linked to the UM so some equity derivative, there

is some long term there. It is also there is something which is called operational risk, which is something that's what they can as long as the regulator is in favor, they can shed relatively easily, but we don't know the displte between say, sale and run down of the stuff

in the bad bank. And what's interesting, folks, through all of the starting when the press release I believe it was on Saturday, and on and on, what's interesting to me, Filippo, is how the regulators fit into this, how the government of Germany fits into this. Am I wrong to say that Deutsche Bank is being run this morning by the you know, the general statement by the German government. Um, maybe I wouldn't go as far, but I think I see the sense of your question and it is fair.

I mean that Dutch Bank is the largest financial group in Germany, and you would say the German government and also the central Bank, the European center Bank, they do at a stake in this aubidity of the institution. So I think that's what their point of view is, that so they make sure that the bank is solid enough to withstand even choppy waters. And I think this measurement plan attempt to go in that direction to make dodger banker's or leaner but maybe more solid. Philippa, do you

see this plan is quite a positive this morning. Um, I'm a little bit on the fense in the sense, of course, for for that to be in very great positive would have involved a capital raise. But of course that's so. I'm aware that since the bank has raised so much money thirty billion over the last nine years, it's actually quite tough to go back to the Shilder say would you mind stamping it? I don't know. I don't know another five six billion eur in order to

found this restruction. I think that's so something got a given. And in the sense that so is the reduction on the city one Racio Dodger Bank. I would love give you on the regional strategy here as well, focusing on Germany, Philippa. Focusing on Germany. It's not a good or a bad thing right now, Well conjunctory is maybe it's not a great thing. So, because that's what we know. The German economy is in slowdown. But at the same time, so you would think that the the German economy needs a

strong bank. They wouldn't make the case of forces or lots of the world street bankers or the government, the dripping Morga and the Bank of America. The well, very well established in Germany. But I think as the Germans perceived, they do need a so called national champions one able to accompany the say the large German export around the world. Okay, exactly, but the John's good question to those people need sophisticated

or less than sophisticated fixed income strategies. I mean, all they want to do is affect commercial transactions in same Malaysia, right yeah, I think so, yeah, there is an element of that. So they want to be also the bank to be able to accompany them, saying trades in ants program, they want to build I don't know, a factory in Southeast Asia, or they want to finance a the acquisition, say, for example, of a manufacturer in Brazil by a Japanese

company or German investments, I don't know. In Canada, I think so they the German you have to think they're very conservative nature and they like to have a bank to speak the same language. Philippa's I mean in London and New York is maybe maybe a bit more difficult to or understand, but I think it's very peculiar to the German nature. Right. This has been wonderful, Philippa, al already, thank you so much. We now get perspective after someone

who's really worked seven last three or four days. Alison Williams, Publishing with Bloomberg Intelligence. Allison, what you say to the people down in Wall Street today with Deutsche Bank? I think that, uh, saving is made sort of the best of some bad choices, right, so there's really no good choices. You had to do something sort of big and bold. I do think, you know, there's a lot of talk about exiting the US, not having a US, but the headlines don't say that. They don't because I think that

would have been a mistake. So, you know, instead of editing a region, they're exiting a product. The question for US remains, you know, they're going to keep some business there. How big is what they're keying exactly? Why is it stock down this morning? I mean we had the pop. I mean you bought you bought it? What three am, John? Keep me out of this, you know, but you bought the pop and we're it's not pretty The stock price

is not pretty. Well, I think it's two things. Um, you know, well, I guess it really it's one thing. The bottom line is the fact that, um, you know, this is sort of the one of many plans that's come out. Yes, it's a bigger, broader plan, but I think that it requires patients and it will take time. And I think it's very positive that they put this

plan together, um, which should avoid a capital raise. But I think that there's probably um, you know, perhaps a lack of confidence in that, and that concern is going to linger for a while, just given the past history. What's the best news of the morning? A Torso just purtably no Torsten slut just published at Deutsche Bank. We like the fantastic news for Torsten Slack, and I hope

it stays that way because we all enjoyed reading this research. Alison, outside of avoiding a capital race, what are the positives for shareholders this morning? I think the positives are that again it's a big change. Um, the cost targets, the profitability targets are all reasonable, so I think, you know, they're they're not heroic if you compare them to competitors. You know, however, you know, given where Deutsche Bank is, it still is sort of a tough slot. And that's

why you know, we talked about you know, more patients required. Um, you know, I think it's been a show me story for a long time. The key concern for us is really, you know, you're exiting equities, you're focusing on the things that you're good at, But how about big do you have to be in equities to sort of keep a

presence and not hurt your competitive positions? And there's adjacent businesses, you know, researches is an area UM that they've said that they're gonna stay in, so equity research, MAC research. They're going to keep enough of an equities effort to support M and A, to support equity underwriting. Um So how big is that and and can they still be UM successful on that smaller scale? The stock is down four percent the lows for the session. We've rolled over

in the last couple of minutes. Again, the headlines that I keep reading is radical change, radical restructuring, eighteen thousand jobs, and it certainly sounds radical. Is this radical enough for Deutsche Bank? Kallison? I think we need to have more details in terms of where the eighteen thousand is coming from. And I should flag the fact that they started a presentation at eight am, so I'm not sure um if

there was something said early in the call. UM. I know that there was a media call earlier where there were a lot of questions about where the eighteen thousand's going to come from. You know, management is not giving detail on that. I think the fact that they're not giving detail, the fact that they outlined one point four million of costs in the private bank signals that some of those could be coming from retail, some could be coming from Germany. Why did they decide to not do

a cash call? It was that dictated to them by large shareholders, was a dictated to them by the German government. I think that they, obviously for their shareholders, want to avoid this cash call. They are cutting the dividends, so there is some pain to shareholders. But there definitely are some smart money investors in this company, some former bank managements.

Presumably any company UM where you're going through such a big change, UM would would talk to your major shareholders and think about how they how they think about Well, I just want to explore this a little bit further

with you, just to wrap up the conversation, Alison. I do wonder whether this narrative starts to take hold that the profitability targets are bold, the restructuring costs is so high that yes, they may say we don't need a cash call now, but I wonder whether the market is making an assumption now that they won't be able to

avoid one because of those reasons. I think the market is sort of telling you that or and that seems to be with the sock is signaling I think, because you know, a bank can can say all day long they don't need capital, but given past history, UM, you know, with banks, with this company in particular. Also, we don't know about the environment, so there's still a lot of environmental risks out there. And I think that UM would

be my concern as an investor UM. And you know, let's give it some time and see how things UM play out. Alison Wilson Williams, thank you so much, greatly, greatly appreciate. It has been an extraordinary day and we see that now with further erosion in Deutsche Bank. Let me get up the chart here right now, because it's

not a pretty chart. We can describe an eight percent moved down from the peak this morning seven point four eight ish seven point four nine and the peak that was in the three am hour, and now we break down to new lows moments ago. Marcus ashworths with us, maybe with a good summary after talking to bond experts, that airms, if talking to Allison Williams, the equity and the strategic fundamentals, let's talk about the human condition of this. We can do this with Mr Ashworth with years and

years on Global Wall Street. What a miserable day, Marcus for eighteen thousand plus at Deutsche Bank. Indeed it is it's been a long time coming on. In essence, what we're seeing here is international Messem banking employees being like, oh, though some will be transferred to other firms, possibly um at the expense of domestic German retail employees, which is what would have happened or more of if the Comments bank um merger had come through. But you know, Deutsche

has kept too many options open for too long. It's not going to be in filman sacks of Europe and it had finally to take the domestic and go back to be a bank rather than investment bank. Let's take a broader conversation the people that will be looking for jobs. What's the state of Global Wall Street right now? And particularly the state of your London. I have to say, um, obviously there's a Brexit element to it, though I don't

think that's anything near as important as Meford two. And indeed the whole robotic AI switched to doing UH finance and in a in a more efficient manner and with less body count. And I think that this is a another big crunch akin to the global financial crisis for for for employees around the world and investment banking, because there simply isn't any money to be made in a negative rate environment. That Feds cutting rates as well, so we've got no upside and people do not pay for

trading stocks. I mean, I mean you, and in folks, I should say that if you read Marcus Ashworth and Bloomberg opinion, it's extremely visceral writing about the moment. In the moment of the last two weeks into this Deutsche Bank announcement, Marcus is price up, yield down, and they keep buying. I keep telling people this is not a yield analysis, it's a price analysis. The desperation to own paper, What is the why of the desperation to own notes,

bills and barns. It's simply because you have an index, or a lot of people have indexes to perform regardless in some senses. If you can see it's going one way traffic, you have to be part of it, and that's hold your close your eyes, hold your nose, whatever is and buy. Because in essence, this is going to be a terrible year for people after possibly a bad twenty team in certain ways and getting caught out in particularly the bond markets by not being long enough stock

or long enough of maturity. Is is going to hurt you badly. What is your understanding of if Deutsche Bank slims and trims in New York and London and everywhere else, they're going to be quote a German bank, what does that mean to Marcus Ashworth? What it means that they were once seen, obviously is for many years as the titan of German corporate um industry, and not that where perhaps as where Comets Bank has maintained it's it's it's reputation.

Deutsche Bank then went outside around the world and tried to take on Wall Street, and it very nearly succeeded. In fact, you could argue succeeded brilliantly for many years. But the domestic business is something which they obviously feel they can make still make good money on on on deploying capital into using the weight of German industry and the weight of German banking and combine it together as

a powerhouse of Europe. And that's what they are. They're a powerhouse of Europe Germany, and they need a bank to reflect it. And they've not had it. They've had a underperforming um not quite up to bulge back at status US investment Bank. And then there's that little article Marcus of BMP Perry bar making clear they're going to go after their prime brokerage, their hedge funds, servicing business

as well. I mean, on a game theory basis, everyone in continental Europe un credit BMP Perry, but all of them Commerce bank. They all react to this news. What kind of meetings are they having today? Is their adversaries struggles. Well, I think you'll find that that some of the Deutsche businesses will switch to BMP in the sense so much how they're going to be sold or what they're gonna get from the point is is that Deutsche Bank is

making a clear statement here. It fell in love with the hedge fund, it fell in love with America, and they are moving away from both of those types of business. It's become a much more of a corporate bank, focusing on European and and it's it's industrial strengths and moving away from hedge fund clients. Those people stay with Deutsche Bank or continue a part of their business or marginally

add business with Deutsche Bank out of national duty. Yeah, of course they do, and I think I think some will increasingly if they feel that they're being loved, whereas perhaps they may be ignored. And I think that there will be more emphasis on trying to unify a European banking presence, which is overall in a pretty poor states as it happens. Basically, they couldn't make any money trying to sell stocks to hedge funds and that that that is a very simplistic way of putting it. But there's

no money in stocks anymore. You don't get charge any brokerage for it. There's not They're not getting enough m and a business to to justify having the secondary presence. And they can probably do a lot of this anyway regardless without having about a massive equise union. That's the whole point. They can dip in and dip out, and some of their captive corporate clients will do business with them regardless. Tell me about the asset management, Marcus, you

and I had a conversation X months ago. They were going to sell the Crown Jewel. That didn't work out. They couldn't get the price, and now their trumpet in DWS. Their asset management business is the future. But do you

see active management as a future right now for anyone? Well, I think what they're trying to do is less than the pain of the fact they're moving out the invest in banking side to to such a large degree, in particularly obviously focused that I would be on equity that they're trying to emphasize they are still a broad brace bank. They have private wealth management to have asset management because

they did have to raise some money from DWS. But the point is that DUS is worth more to than the moment in house, and they're emphasizing the fact it has these managed to grow some assets. So it's you know, asset managed being a terrible business to be in for the last two three years. Going to suffer from that, but at the moment, relatively speaking, it looks better than the others. Tell me about your London. Let's finish up here in Marcus, with the city. I mean it is

the wall, it is historic. Full disclosure, folks. I've been a guest of Deutsche Bank a number of times in London. Is Well, we're talking to Shinelli Basak about downtown New York, downtown Manhattan and the sadness that will be there today. How does that work culturally in London? How do they handle the layoffs at the Wall? Well, I mean, it's

going to be a difficult day for many. Um. I think that we know that this is going to be a process which like when Lehman Brothers, will be a lot of media attentions are focused on and I think you'll find that will be a good a good effort done by a lot of head hunters to try and get the best, the cream of the crop. So for some people this will be it will be relief. There'd be probably not been joying the life of some while, and there'll be a lot of tension on trying to

grab the best out of Deutsche Bank. So some some they'll this will be a good day. For some it's the end of a career. Interesting. Thank you so much, Marcus Ashworth. Great perspective there, Lisa rom woids here in for Paul Sweeney. The big question bond markets today is can U S yields go lower at a time when the U S economy seems to be pretty good? I mean, Tom,

that seems to me the fundamental issue here. And uh, Christian Momany is going to give us a sense of what invest goo and Christian I think in dovetail in here the up down, the back of the fourth of the weekend. Christian, you're going on Monday morning, what do you do? You guys are long term? How casual are you on this Monday? Well, so we are not casual at all. This is investing and this is serious business.

Having said that, one has to be somewhat amused with the gyrations that we have had so far so far this year. Our bottom line in this regard is very simple. We think the U S economy is going to pick up in the second half of the second quarter was just a soft patch, a payback perhaps for the inventory bill that we had in the first quarter, and things are going to get better and as a result, rates

are probably going higher rather than lower. And I think the employment report on Friday was a proof point in that regard. However, the markets will do the equity markets will do better, and on the SNP is what I'm looking at. Can we just pause and say, I believe I heard optimism there, well, optimism about equities, but the

implication here for bonds is potentially dire. I mean, how how much higher could rates go given the fact that duration levels, the sensitivity of investors fixed income assets is the highest it's ever been to an increase in interest rates. Sure, so I think that that certainly is a problem, and that that particular issue may cause a bit of this

location in the marketplace. Having said that, our outlooking rates are probably our u S tenure rates probably end up closer to two fifty, not a whole lot higher from where we are right now, but you know, the fifty basis point move, and that could be a significant movement as the market adjust. That may cause a bit of a dislocation. As I mentioned, however, that this location in our view is a buying opportunity rather than a reason for us to kind of get discombabulated and panic. What

sector is most attractive right now? If it's a buying opportunity. I know you don't talk individual stocks, but what sector is particularly opportunistic given the cacophony of news. Well, so let's let's talk about what the first what sectors are probably not a good opportunities and the defensives the sectors that do well when interest rates rally, of the reeds and other safer asset classes utilities, those are not the

sectors that you want to be in. The sectors that you want to be in are the typical sectors that do well because the economy is improving and the outlook for the economy, certainly in our view, is improving, and therefore industrials, uh and uh, you know, sectors that are sensitive to the overall economic growth. Pictures and tech. The one thing that I would say is that a lot of people who get very worried about tech valuation and

concentration and things like that. But from my standpoint, if the markets are going to do well, and I firmly believe they're going to do well, the likelihood that they do well without tech doing well, that just doesn't fool. So tech remains a favorite sector of of mine and probably will remain favorite sector of mine for the rest

of this cycle. Christia, one question I have is can the US tenure really moved two and a half percent given where we are in Europe, and given the fact that people are still speculating that the ECB may even add quantitative easing leader this year, well so, no, that's that's a very valid point. If the policy action in Europe end up being very, very prolific, and with the change in leadership, that may indeed or at least some

version of that may become become reality. If that's the case, then the two fifty may not may not pan out. Having said that, the key point that I'm trying to make is direction of rates is higher rather than lower, primarily driven by US economy doing better. Christian MoManI with this with investoral. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom

Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.