Deutsche Bank is implementing a companywide hiring freeze as chief executive officer John Cryan seeks to lower costs and shore up investor confidence, according to people with knowledge with of the matter.
In a message to divisional chief operating officers on Wednesday, the Frankfurt-based lender said hiring will be put on hold with immediate effect, said the people, who asked not to be identified because the talks are private. The hiring freeze affects all divisions excluding some control functions such as compliance, according to the people.
Cryan, 55, is struggling to reverse a slide in shares that eroded almost half of the company’s market value this year, amid concerns about mounting legal costs after the US Department of Justice requested $14bn to settle a probe into faulty securities. Since taking over in 2015, Cryan has suspended dividends, scrapped bonus awards for top management and cut risky assets while eliminating some 9,000 jobs.
“It’s a very drastic step,” said Michael Seufert, an analyst at NordLB with a hold recommendation on the shares. “But it makes sense if they’re excluding compliance from the freeze — they have a lot of catching up to do.”
The shares fell 2.5% to €12.04 at 1pm in Frankfurt. They have dropped about 47% this year, making them the fourth-worst performer in the 38-member Bloomberg Europe Banks and Financial Services Index, which slipped 23%.
A spokesman for Deutsche Bank declined to comment on the hiring freeze, referring to an announcement on October 6, when the bank said it reached an agreement with labour representatives to cut 1,000 positions in Germany as part of the wider restructuring plan. The lender employed more than 101,000 people in June, up from 98,138 at the end of 2014.
Analysts at JPMorgan Chase & Co have estimated that Deutsche Bank could save as much as €1.9bn ($2.1bn) this year largely through a hiring freeze. Asked whether the lender will scrap bonuses for the executive board for a second year, Cryan told Germany’s Bild newspaper last month that “nobody has unrealistic expectations.”
“A way to cut costs is reducing the bonus pool,” said Philipp Haessler, an analyst at Equinet Bank in Frankfurt, with a neutral recommendation on the shares. “Some people may say that this could lead to a flight risk but does it really in this environment?”
Europe’s largest lenders have cut costs and eliminated jobs to weather a slump in earnings, hurt by negative rates, volatile markets and tougher regulatory scrutiny. At Barclays, CEO Jes Staley last year imposed a hiring freeze, helping reduce headcount by a net 13,600 over the past nine months. The CEO has since relaxed restrictions and made the hiring process less stringent, according to people with knowledge of the matter.
Cryan last month sought to reassure investors that he doesn’t plan to raise capital, saying that he expects US authorities to scale back their initial request. Deutsche Bank’s negotiations with the Justice Department to resolve a years-long investigation into residential mortgage-backed securities are continuing, people familiar have said.
Deutsche Bank, which houses Europe’s largest investment bank, is holding informal talks with securities firms to explore options including raising capital should mounting legal bills require it, people with knowledge of the discussions said last week. The lender could also revisit selling its Deutsche Postbank unit or parts or all of its asset-management division, they said.
The CEO has already said Deutsche Bank may fail to be profitable this year after posting the first annual loss since 2008 last year. He also signalled that the lender may have to deepen cost cuts.
Deutsche Bank is scheduled to release third-quarter earnings on October 27.