Once feared for its deep pockets and ability to buy up talent on Wall Street, Deutsche Bank is struggling to come to grips with a U.S. banking strategy gone badly awry.

In a strong sign that the bank's ambitious plan to expand U.S. investment banking and corporate finance efforts has gone off the rails, two top-ranking officers have resigned, and about 100 staff members in New York are said to have been given notice. Sources added that morale is sinking among New York employees as operations are put under review.

"Costs have clearly been growing out of control," said Jonathan Morris, European banking analyst at HSBC James Capel in London.

"I suspect their commitment to investment banking is going to take second place to efforts to improve the profitability of their existing balance sheet," Mr. Morris said.

Senior Deutsche Bank board member Ronaldo Schmitz insisted in a recent statement that it will be business as usual in the United States. An internal memo at the bank also stated that the moves are intended to "realign" rather than retrench on U.S. investment banking and corporate finance.

The memo added that the goal is to provide investment banking services to a "smaller, more focused" group of clients in technology, metals and mining, chemical, pharmaceuticals, telecommunications, and capital goods and services. Among the sectors Deutsche Bank is dropping, the memo stated, are forest products, aerospace, retail, and utilities.

Analysts said the upheaval shows that Deutsche Bank is determined to put a lid on a program that has generated huge expenses and only limited returns.

Instead of further expanding in the United States, they added, the German bank has decided to strengthen its position in Europe and improve profits of its existing operations. In fact, a Deutsche Bank spokeswoman said about as much.

"The U.S. is a small piece of a huge global restructuring, and the bank has said very clearly that it intends to focus on Europe for now," she said. "Expansive personnel policies are going to be scaled back for the time being in North America."

As part of the changes, Deutsche Bank this week named Robert "Barry" Allardice as chief executive for North and Latin America. Mr. Allardice, who joined Deutsche Bank two years ago as executive vice president and chief operating officer after 18 years at Morgan Stanley, succeeds W. Carter McClelland, who resigned last month.

Mr. McClelland is the second head of Deutsche Bank's U.S. operations to resign in barely two years. His predecessor, John Rolls, quit after control of U.S. strategy was reportedly moved to London.

Mr. McClelland and London-based Maurice Thompson, who has also resigned, were co-heads of worldwide investment banking. Neither Mr. McClelland nor other Deutsche bank executives were available to comment.

The spokeswoman also declined to comment on reports that the resignations were triggered by a $50 million loss last year that was a result of turmoil in trading markets, and by Deutsche Bank's refusal to approve further spending in the United States. Deutsche Bank'sU.S. staff has climbed to 2,300, from 1,000 two years ago.

The two resignations came in the wake of a major reorganization in January, when Deutsche announced it would fire 9,000 of its worldwide staff of 74,000, including 4,000 people outside Germany. The bank also regrouped operations under five divisions: retail and private clients, corporate banking for small and medium-size companies in Europe, global corporate and institutional banking for multinational companies and institutions, asset management, and transaction banking.

In a separate but related move, Deutsche also combined investment banking with corporate banking and shifted control back to Frankfurt from London and New York.

To date, the German bank's record in building up its U.S. syndicated loans as well as debt and equity underwriting has been mixed.

According to Securities Data Co., an affiliate of American Banker, Deutsche was lead manager or co-lead manager on $29.5 billion of U.S. syndicated loans, well below the $473.7 billion that market leader Chase Manhattan Corp. helped manage.

It has virtually no track record in the profitable highly leveraged loan business, and it underwrote slightly more than $10 billion of U.S. public debt last year. Again, this was well below the level of top players like Merrill Lynch & Co., which underwrote $140 billion, or Salomon Smith Barney, which underwrote $103 billion.

And Deutsche did not even figure among the top 25 equity underwriters in the United States.

Recent moves make Deutsche Bank the third European institution to question its U.S. investment banking strategy.

Last year, both Barclays Bank PLC and National Westminster PLC pulled out of worldwide investment banking after heavy expenses and negligible earnings. Still another institution, Union Bank of Switzerland, is expected to trim its U.S. work force radically when it merges with Swiss Bank Corp. in September.

Analysts add that the German bank is in something of a bind. On one hand, Deutsche cannot afford to continue spending large amounts on a business that shows no immediate return. On the other, it risks being left behind if it fails to keep pace with banks that are expanding their global capital markets activities.

"It's the nature of the beast," Mr. Morris said. "It's a difficult market to exploit, and so far, they've been reactive rather than anticipating trends."

Some bankers added that the current upheaval underscores a deeper dilemma for Deutsche Bank, which is struggling to internationalize and diversify itself while still being managed with the focus of a German commercial bank.

"Deutsche will fail because they don't have the culture and their thinking is ossified," said an investment banker who declined to be identified. "The Germans still think German first, and in today's environment, that's a recipe for failure."

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