Sewing's Mission

More Deutsche, Less Bank

Lender's search for a CEO ends with the safety-first candidate.
Updated on
Photographer: Andreas Arnold/Bloomberg
At Closing, May 25th
10.38 EUR

Deutsche Bank AG's near-farce of a CEO search, which saw the lender trying to lure glamorous outsiders, has ended with the "safety-first" candidate.

New boss Christian Sewing is a company lifer. He hails from the consumer rather than investment-banking side of the business. His most recent win was getting employees on board with deep job cuts, which gives a flavor of what might be next for Deutsche Bank's traders. Marcus Schenck, deputy CEO and co-head of the investment bank, is off -- presumably because he could see the writing on the wall.

Year of Pain

Deutsche Bank's shares have trailed their European peers this year

Source: Bloomberg

The decision marks an end of an era in terms of culture, and one that will probably please politicians and regulators. It’s a defeat for the global ambitions of the hard-charging risk-takers who have run Germany’s No. 1 bank for the past two decades, from Josef Ackermann to Anshu Jain. Most recently, John Cryan, who made serious efforts to halt excessive pay and risk-taking and shrink the lender to health, was unable to rally the institution behind him.

But this isn’t a victory for shareholders yet. Reviving Deutsche Bank still requires even deeper cuts to staff and pay, upgrades to its creaky technology, and hard decisions on which businesses to let go -- particularly in the U.S. All of these come at a cost -- profits and prestige will probably take a further hit. If Cryan couldn’t pull this off, how can Sewing?

Years of strategic about-turns and losses have left deep scars. Last year’s results showed a bank whose core businesses were barely making a profit, even after a big capital-raising designed to restore confidence. The “flow monster” trading arm’s best days are probably behind it, with cost cuts failing to keep pace with revenue declines. Even the private and commercial bank, where Sewing has been co-head, is suffering from a home market where too many banks duke it out for too little profit. The division’s costs ate up 94 percent of revenue, which is bleak indeed.

The response is likely more Deutsche, less Bank. Reducing its global footprint seems pretty much inevitable. A smaller U.S. presence is on the cards, and prioritizing Germany and Europe will no doubt keep stakeholders like the government and voters happy. Plans to ramp up lending to small- and mid-sized companies, while pruning the number of bank branches, should hopefully improve the commercial bank’s returns.

But how much freedom will Sewing have to apply the scalpel to Deutsche’s trading operations? The last time a retail banker took over a big investment-banking brand in Europe, it didn’t end well: Antony Jenkins was ousted after three years at Barclays Plc and replaced by Wall Street veteran Jes Staley.

It’s not clear how deep Sewing’s institutional support runs. Chairman Paul Achleitner and the board have dithered just as much as anyone else over Deutsche Bank’s ambitions, as evidenced by the investment bankers initially approached to take over from Cryan.

Discounted Deutsche

Deutsche Bank's price-to-book ratio trails those of its peers

Source: Bloomberg

Deutsche Bank has been the cheapest European bank in its peer group for some time. Investors will probably find the new face at the top an acceptable and low-risk one: the lender's shares jumped as much 4.7 percent on Monday. But that isn't grounds to be optimistic that this change will lead to revival in the near-term.

(Updates with stock reaction in final paragraph.)
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Lionel Laurent in London at

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