A tough regulatory environment isn't enough to make Deutsche Bank wave goodbye to the United States.
The German company unveiled a new strategic plan on Monday under which it plans to shrink underperforming business lines and numerous foreign markets in order to reinvigorate its weak returns for shareholders.
However, despite Deutsche's enormously costly legal and regulatory problems in the U.S., its American business will remain intact, the company said. The U.S. is "a cautiously optimistic place for us, a complex place to do business, but one where we see opportunity for ourselves," co-Chief Executive Anshu Jain said while speaking on a conference call with analysts and investors.
"We are investing in the U.S.," Chief Financial Officer Stefan Krause said on the call. "We want to grow our business in the United States, [and] we are not planning to reduce U.S. assets."
With the announcement Monday, Deutsche is following in the footsteps of major foreign banks like Barclays and UBS that have sharply cut back their global ambitions in recent years while holding on to U.S. corporate-banking services. Royal Bank of Scotland is exiting the U.S., and HSBC Holdings executives said in February that they couldn't rule out a sale of the American bank if returns don't improve.
Increased regulation has been a big reason for the exodus. Deutsche's regulatory failures in the U.S. have been costly: last week, for instance, Deutsche said it would pay nearly $2.2 billion to U.S. authorities to settle rate-rigging charges.
"The cost of resolving legacy conduct matters... particularly in the U.S." has taken a toll, co-CEOs Jain and Juergen Fitschen said in a news release.
Deutsche also failed the Federal Reserve's Comprehensive Capital Analysis and Review in March, the first time it has been subject to the exam. Krause downplayed the failure on Monday, calling it a "classical non-passing of CCAR in the first time around on qualitative things" and said the U.S. unit is "very well capitalized."
These failures are damaging, but having a strong Wall Street presence is nonnegotiable for Deutsche, executives said. Jain said Monday that Deutsche needs a robust U.S. business to be a major international player, because many foreign clients with large American businesses need Deutsche to serve them here.
Deutsche Bank Trust Company Americas had assets of about $54 billion at Dec. 31, but almost no retail presence in the states, according to the Federal Deposit Insurance Corp.
Deutsche Bank did not immediately respond to a request for details on what kind of investment it was planning in its U.S. business. Keefe, Bruyette & Woods analyst Alevizos Alevizakos thinks it is likely to be "a different kind of investment" than in the past, focused more on offering key clients a more targeted set of services, and being more selective about who they offer repo services, prime brokerage and certain derivatives, he said.
"From now on they won't be offering all products to everyone," he said.
Overall, Deutsche's strategic plan calls for broad deleveraging, while increasing regulatory capital to 5%.
The bank will sell its postal bank unit, cut investment and retail banking, close about 200 branches, exit up to 10 countries and "focus on countries that are most essential to our clients and offer the greatest growth potential," Jain said on the conference call. It plans to invest in its wealth management and advisory business.
Deutsche announced the new strategy a day after it reported a$608 million profit in the first quarter.
Revenue rose about 24%, but a litigation cost of more than $1.6 billion tied to the rate-fixing settlement drove down the bank's overall profit.
Deutsche's shares on the New York Stock Exchange fell 4.82%, to $32.61, on Monday.