German banks’ savings won’t cover cost of capital over 10 years

German banks aren’t going to be able to reduce their expenses quickly enough over the next 10 years to cover their cost of capital, according to Bain & Co. Deutsche Bank AG and other companies in the industry have the potential to cut their costs by about 30% by taking steps including modernising their technology and focusing on businesses with competitive advantages, consultants Walter Sinn and Wilhelm Schmundt said in a report on Saturday. Bain assumed an average cost of equity for the banks of 6.6%. “There is no alternative to radically cutting structural costs,” the Bain consultants said. “This requires, among other things, 11,000 branches to be closed and 125,000 job cuts.” Deutsche Bank announced plans last month to shrink its workforce by about 26,000 people by 2018 and focus on customers who generate the most revenue. The lender also plans to eliminate the dividend for this year and next to conserve capital. (By Jeffrey Vögeli/Bloomberg)