Deutsche Bank’s chief executive Christian Sewing is preparing a radical overhaul of its ailing corporate and investment bank, telling shareholders that the German lender is prepared “to make tough cutbacks”.
Mr Sewing, in charge during a 13-month slide of 40 per cent in the share price of Germany’s largest lender, did not disclose his plans in detail. However, he implied that the lossmaking US equities business would be among the targets.
Investors reacted nervously and shares in Germany’s biggest bank fell 2.4 per cent to close at a new record low of €6.46 on Thursday.
Speaking to investors at the bank’s annual meeting in Frankfurt’s Messe festival hall, Mr Sewing did not name operations that would be shrunk, or outline a timeframe.
In a terse memo sent to employees on Thursday morning, Deutsche’s investment banking boss Garth Ritchie said that “we should be prepared to make further adjustments to improve profitability”, adding that he “recognise[d] the challenges and uncertainty this may bring”.
“We will accelerate transformation by rigorously focusing our bank on profitable and growing businesses which are particularly relevant for our clients,” said Mr Sewing, adding that “this is my pledge, and you can be sure of that”.
A person briefed on the plans said “this will be the most radical reorganisation since Bankers Trust”, referring to the 1999 acquisition of the US investment bank that marked the start of Deutsche’s ambition to become a global investment banking rival to Goldman Sachs and JPMorgan.
Deutsche shareholders discharged all members of the supervisory board as well as its management board but their approval ratings were markedly lower than last year. The actions of chairman Paul Achleitner were ratified by 71.6 per cent of shareholders, down from 84.4 per cent last year, while 9.75 per cent of investors supported a motion to remove him from the board, up slightly from last year.
Mr Sewing announced that the bank was going to merge “parts” of its compliance and anti-financial crime unit, led by Sylvie Matherat, with non-financial risk management, which is overseen by Stuart Lewis. While he did not say who would head the enlarged unit, insiders suggested it was unlikely that Ms Matherat would be in charge.
Deutsche is facing several money laundering probes and has paid hundreds of millions of dollars in fines for breaching money laundering and sanction rules. Only 61 per cent of investors voted in favour of Ms Matherat and Mr Ritchie at the AGM. Mr Sewing received support from 75 per cent of investors, down from 95 per cent last year.
On Wednesday, it disclosed that a software glitch that was in screening software for almost 10 years may have prevented the flagging of some potentially suspicious transactions to authorities.
“The perennial discussion about money laundering is a pathetic display. It is damaging the reputation as well as business,” said Alexandra Annecke at Union Investment, Germany’s third largest asset manager.
Last year, Mr Sewing shrank the investment bank’s balance sheet by 13 per cent and reduced its headcount by 7 per cent.
However, the investment bank still ties up two-thirds of Deutsche Bank’s risk-weighted assets and in 2018 generated a return on equity of less than 1 per cent, far below most rivals.
Large investors and regulators have long called for more decisive cutbacks in the investment bank, which has been lossmaking for several years. However, Deutsche Bank chairman Paul Achleitner told the Financial Times last month that he does not see the need for a radical strategic overhaul in the area.
Shareholders at the AGM welcomed further investment banking cuts. “The additional shrinkage of the investment banking division in the US is long overdue,” said Andreas Thomae at Deka Investment, which holds a 0.6 per cent stake in the bank.
Mr Thomae warned that Deutsche is losing even more ground in investment banking while rewarding this failure with lavish bonuses. “That’s a luxury Deutsche Bank cannot afford,” he said.
Mr Sewing on Thursday told investors that he is focusing the investment bank “around its strengths” — activities like corporate finance and origination and advisory, that boost the lender’s other businesses and segments that are “profitable on its own” like currency and bond trading as well as US commercial real estate.
A person familiar with Deutsche’s plans pointed out that US equities trading, which according to a JPMorgan estimate generates annual pre-tax losses of €200m to €300m, does not meet either of the two criteria.
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