Germany’s Deutsche Bank Monday unveiled plans to cuts costs by €3.5bn (£2.5bn) and sell off its Postbank business. This comes days after announcing it will post profit in the first quarter of this year despite litigation costs of €1.5bn ($1.61bn). Deutsche Bank, you will recall, is Germany’s largest lender and the seventh largest in the world. As part of its cutting costs strategy, it will close up to 200 High Street branches by 2017 and leave or reduce its presence in some countries. Postbank will be sold through a stock market listing by 2016.
But investors are not happy with the announcement. Even if the measures would involve savings of €3.5bn euros annually by 2020 and will drive a return on tangible equity of at least 10% during same period hence increasing its profitability, investors showed their displeasure with this latest plan by the Chief Executives of Deutsche Bank. Shares fell by 4.6% to €30.13 hours after the announcement.
Deutsche Bank: Administrative Headquarters.
Credit: Wikimedia Commons
Tough regulations, weak markets and mounting legal bills from misconduct settlements are pressures forcing Deutsche Bank to take moves to axe unprofitable lines in order to boost earnings and make its balance sheets look trim. Days before, Deutsche Bank was fined $2.5bn by U.S and British authorities for obstructing regulators. Twenty-one people also face criminal charges.
Despite the fine, its Q1 revenue reflects a “strong performance across business and a favourable impact of foreign exchange movements,” the bank said in a statement. Revenue at the bank's asset management division was up 30% at €1.4bn, while revenue at the corporate banking arm rose 15% to €4.7bn. The $2.5bn fine by US and UK regulators related to Deutsche's attempts to manipulate the Libor and Euribor rates. At the end of March, the bank had €4.8bn set aside in litigation reserves.
Deutsche Bank’s strength lies in the trading interest-rates and credit products worldwide, for which it was recently ranked second by Bloomberg.
Postbank on the other hand has not proven as profitable as Deutsche Bank would have hoped. By 2016, it would sale off Postbank, shedding off about some 10, 000 employees from its global employee numbers of some 98,000. Stiffer regulatory requirements and expectation that regulators would require increasing capital requirements made it imperative that Postbank be shed.
Investors worry though that 2020 is too far a time to wait; that is five years from now. Analysts believe those set targets are achievable. Deutsche Bank needs restructuring. What was left unsaid was how many jobs will be lost in that exercise or which countries it will exit. Latest reports have it that the bank is more interested in emerging markets but would not leave off its strategy of being a global lender. Spending for digital technology though is expected to be about €1 billion. Asset and wealth management divisions will expand by 10% a year until 2020 and the number of relationship managers will increase by 15% in key markets.
Netflix Inc., a provider of on-demand internet streaming media has posted quarterly revenue of $1.47 billion. The income met forecast estimates but was disappointing when averaged against its shares. Analysts had expected a profit of 69 cents per share on revenue of $1.57 billion. The disappointing profit statement was attributed to foreign exchange losses due to the strength of the American dollar in the first quarter of 2015.
Netflix also, on Thursday, announced a subscriber base of 62 million users worldwide for the quarter ended March. The market reacted, creating a surge of its shares by 11.6 percent to $530.90 dollars in after-hours trading. A positive 4.9 million new customers were added this quarter (2.6 million new subscribers from outside the US) in its nearly 50 international markets that include the United States, Europe, Australia and New Zealand.
The favorable market reception of its report and increased subscriber base, according to Chief Executive Officer Reed Hastings, is attributed to the streaming of fresh original content including the third season of "House of Cards" and new series "Unbreakable Kimmy Schmidt" and "Bloodline".
Chart. Netflix shares to date.
In a related development, FBR analysts Barton Crockett and Howard Ma, estimate that based on its demographic survey of streaming media in the US, the share price of Netflix is expected to go up to the $900 dollars mark with an increase in subscriber base to 180 million, with 60 million from the US alone.
Netflix is also seeking shareholder approval for an increase in authorized shares. In its report, the company said it will recommend a stock split to its Board pending shareholder approval. The company also announced that it will soon be using the HTTPS protocol to authenticate and encrypt customer streams in a move that will enhance customer privacy and security online, and as a means to thwart man-in-the-middle attacks that hijack a huge chunk of internet traffic.
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