Deutsche Bank AG Chief Executive Josef Ackermann warned that prospects for the financial sector are constrained by the mounting debt burden of sovereign and private debtors and that Germany's largest bank might need to shed jobs if the negative market trend from August continues.
Ackermann conceded that European banks don't face a "rosy" future in their home markets unless they can gain market share. Deutsche Bank has made an attempt at this by taking over retail bank Deutsche Postbank and other units.
Deutsche Bank will need to "consider job cuts if markets don't improve in September and beyond," Ackermann said at a banking-sector conference in Frankfurt on Monday.
Against the backdrop of limited income growth, Ackermann underlined the importance of keeping costs under control. A recent media report suggested that Deutsche Bank might step up efforts to improve efficiency and aim to make additional annual savings of €1 billion to €2 billion (about $1.42 billion to $2.84 billion), resulting in a possible reduction of staff in investment banking.
The investment-banking unit, which is responsible for the lion's share of the group's earnings, is already implementing a cost-reduction project known as Integra. It aims to better integrate the investment-banking unit's corporate financing, transaction banking and trading activities, and through doing so add €800 million in total to pretax pr ofit in 2011 and 2012.
Ackermann's comments also underline the difficulties Deutsche Bank faces in attempting to reach its 2011 operating pretax-pr ofit target of €10 billion, before one-time effects such as regulatory charges.
The weak market environment in August follows a weaker-than-expected second quarter for Deutsche Bank's investment-banking units, after which analysts said the whole bank may fail to meet its full-year pr ofit target of €10 billion if conditions on financial markets don't improve significantly. Ackermann has said the target is at least still in sight; the company earned €5.5 billion in the first six months.
The CEO's remarks on potential job cuts at Deutsche Bank echo recent announcements across Europe and the U.S. In July, Credit Suisse Group said it will shed 2,000 jobs, or 4% of its staff, mostly in its investment-banking unit.
Ackermann also said Monday that many European banks wouldn't be able to absorb losses from sovereign bonds if the securities were valued in line with market prices. Still, he insisted a forced recapitalization of the sector isn't needed.
"It is obvious, not to say commonplace, that many European banks wouldn't cope with having to mark the sovereign debt held in their banking book down to market value," he said.
Since the beginning of the year, some European banks have lost a third or more of their market capitalization, he said. "For most banks, the valuations are beneath the book values, in the best cases, at book value," he said.
In a sign of banks' wariness toward one another, euro-zone banks deposited a 2011-high €151 billion of their funds with the European Central Bank on Friday.
Use of the ECB's overnight facility -- which offers less in interest than banks can get in the interbank market -- has been over €100 billion since mid-August, a level usually associated with heightened market stress.
"If we were to see any material impairment, such as with the Spanish and Italian debts, you're faced with...systematic problems and needs for a massive system-wide recapitalization," said Jon Peace, an analyst with Nomura. "People are going to be very nervous about bank asset quality."
International Monetary Fund Managing Director Christine Lagarde in late August called for the urgent recapitalization of European banks. The proposal stirred a mixed reaction from banks, regulators and analysts.
The European Commission said it saw no current need for additional support for the region's banks and that this discussion had already taken place between the EU and the IMF.
Eyk Henning and Ulrike Dauer are reporters for Dow Jones, where this story originally appeared. Write to Eyk and Ulrike.
Laura Stevens contributed to this article.