Deutsche Bank Reports Half Its Business Units Fail to Generate Returns Above Capital Costs

Deutsche Bank faces a profitability challenge, with roughly half of its business units unable to generate returns that exceed their cost of capital. The revelation comes as the institution pursues a strategic overhaul aimed at strengthening financial performance.

Since taking the helm in 2018, the bank's leadership has navigated a demanding restructuring process. Siving, the bank's president, has pledged to drive profitability improvements throughout the next three years as part of this ongoing transformation.

The bank's strategy includes withdrawing from lower-margin business segments. As of 2021, approximately 20 percent of Deutsche Bank's capital remained invested in activities that merely covered their cost of capital—a situation the institution is working to remedy.

Market pressures have weighed on the bank's valuation, with its stock declining roughly 18 percent since the start of the current year. Concerns about potential economic slowdown and rising bankruptcy rates linked to elevated global oil prices have contributed to investor caution.

Recent management commentary reflects the bank's operational adjustments. Seving noted in the previous month that Deutsche Bank has been systematically reducing problematic mortgage exposures in the retail segment while channeling capital toward wealth management and corporate lending operations. These sectors represent higher-margin opportunities for the institution.

Technology initiatives are also part of the modernization effort. During a first-quarter earnings call, leadership highlighted the deployment of artificial intelligence across the organization to enhance operational efficiency, elevate customer service quality, and control cost structures.