April 26, 2018 / 6:28 AM / 3 months ago

UPDATE 2-Deutsche Bank to scale back investment bank as profits drop

* Cuts to bond and equities trading

* Bulk of cuts to focus on United States and Asia

* Q1 net profit drops by 79 percent

* Shares indicated 3 pct lower (Updates with details from press release and background)

By Tom Sims and Arno Schuetze

FRANKFURT, April 26 (Reuters) - Deutsche Bank announced cutbacks to its bond and equities trading on Thursday in a major overhaul of its troubled investment bank, after posting a 79 percent drop in net profit in the first quarter.

The cuts will result in job losses and include a scaling-back of its business with hedge funds. The bulk of the cuts will focus on the United States and Asia.

The cuts are a move to become more focused on its corporate customers, and a return to its origins after rampant growth across the globe over past decades.

"Deutsche Bank is deeply rooted in Europe – here we want to provide our clients access to global financing and treasury solutions," said new Chief Executive Officer Christian Sewing. "This is what we will focus on more decisively going forward."

The reduction in headcount is "painful but regrettably unavoidable to ensure our bank's competitiveness in the long run", he said, without giving a number.

Earnings from Germany's flagship lender fell short of analysts' expectations in the first quarter. Net income of 120 million euros was below the forecast of 379 million, according to a Reuters poll.

It was also below the 575 million euros posted in the first quarter of last year.

The cuts and weaker-than-expected earnings follow weeks of turmoil at Deutsche Bank, including the ouster of its chief executive, the departure of senior managers and a stream of negative news about its performance.

Thursday's announcements may determine the bank's credit rating, which influences its financing costs.

Ratings agency Standard & Poor's said this month it had placed the bank on "credit watch negative," signalling a potential downgrade, because the change in chief executive could prolong the lender's restructuring.

The agency said it would decide by the end of May at the latest whether to downgrade Deutsche Bank's ratings, once further details of the new leadership's strategy were known.

Deutsche Bank said the cuts were expected to have a negative impact on revenues in 2018, "but improve our returns in the medium term".

The bank said it would scale back U.S. rates sales and trading and it would undertake a review of its global equities business "with the expectation of reducing its platform".

"Commitment to sectors in the U.S. and Asia, in which cross-border activity is limited, will be reduced," it added.

The recent appointment of Sewing - who has a background in retail banking, auditing and risk - had suggested a shift away from the investment bank. (Editing by Maria Sheahan and Mark Potter)

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