BERLIN, June 29 (Xinhua) -- Deutsche Bank has tried to play down the significance of the failure of its U.S. branch in a regulatory banking stress test on Friday.
A spokesperson for Germany's largest financial institute highlighted that contingency plans presented by its U.S. subsidiary to local authorities had been rejected on "qualitative" rather than "quantitative" grounds. Rather than suffering from a lack of sufficient capital, the Deutsche Bank branch failed the stress-test because of failings related to its control structure and infrastructure.
In its stress-test report, the U.S. Federal Reserve criticized what it viewed as "significant weaknesses" in internal risk management and "widespread and considerable insufficiencies" of the capital planning process at the Deutsche Bank. As a consequence of the decision, the Frankfurt-based institute may now struggle to take capital out of its U.S. branch and wind-down its investment banking presence on Wallstreet as previously announced.
Not least due to several expensive legal settlements in connection to accusations of criminal fraud, Deutsche Bank's profits have been deep in the red for the past three consecutive years. Cumulative annual losses since 2015 stand at 9 billion euros (10.5 billion U.S. dollars).
Speaking at the bank's latest annual general meeting (AGM), newly-installed chief executive officer (CEO) Christian Sewing consequently announced that the number of staff would fall from currently around 97,100 to significantly below 90,000 in the coming years. "The reduction in headcount is unavoidable if our bank is to return to a sustainable path of profitability", the CEO argued.
Deutsche Bank intends to place a greater emphasis on its European home market in the future, reducing its investment and retail banking presence in the U.S. in particular. Sewing was named as the successor to the increasingly-embattled ex-CEO John Cryan by the supervisory board in April.
In spite of the news of the failed U.S. stress-test, the share price of the Dax-listed bank rose by up to 3.7 percent in Friday trading. Speaking to the newspaper "Financial Times" on Friday, Dan Davies, senior research advisor at Frontline Analysis, opined that the seemingly paradox development suggested that investors only considered the gloomy prospects of its U.S. branch to be a relatively minor problem currently faced by Deutsche Bank.
