Deutsche Bank's Massive Restructuring Plan
July 27, 2019 by Jack Anderson
A decade ago, in the midst of the worst financial crisis since The Great Depression, banks faced their biggest challenge yet. On September 14, 2008, Lehman Brothers filed for Chapter 11 bankruptcy. Suddenly, the world realized that nothing was off the table, even one of the biggest investment bank in the world. The rest is History.
The crisis was so vast that it got its own name, The Great Recession. For years, some of the biggest banks went through a very difficult time and many restructuring plans. As an example, Bank of America (NYSE: BAC) plunged from $50 to a mere $5. In a similar fashion, UBS (SMI: UBSG.VX) also collapsed tenfold, from CHF 80 to $8.
But over the last decade, most banks were able to get rid of their bad loans and reunited with positive revenue.
A decade later, one particular global bank is still engulfed with multiple problems. The name of that bank? Deutsche Bank. Its stock price (XETRA: DBK.DE) went from EUR 90 to EUR 7. It even went below EUR 6 in June. Legal complications, bad loans, the bad news culminated with the raid of the German police in its Frankfurt headquarters, in November 2018, over alleged money-laundering. The bank had yet to find a solution.
But this Summer, Deutsche Bank announced a massive restructuring plan that will hopefully be the ultimate turn-around that the bank so desperately needed. DB is slashing its high-risk businesses, hoping for a more stable revenue as soon as 2021. More tangible in the public opinion, the bank will reduce its task force by laying off 18,000 full-time employees.
While the plan is quite technical, the overall message is that DB may have finally offered a real and structural solution to an equally structural problem. At present, the stock price is so low that investors should view this as perhaps a one-time opportunity to invest in the biggest bank from Germany. Even if Deutsche Bank wasn't able to fully implement its turn-around plan, what is quite certain is that the German government would never let its biggest bank go bankrupt, meaning that the risk for investors is quite small. The bank will not issue dividends for two years, but if the bank is able to do this right, 2022 should look much better. Only time will tell.
on 2019-08-07 17:24:13 ET
Well this so-called massive restructuring plan sounds more like a massive investment opportunity to me.
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