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Deutsche Bank CEO Signals ‘Tough Cutbacks’ to Investment Bank

Steven Arons
Deutsche Bank CEO Signals ‘Tough Cutbacks’ to Investment Bank

(Bloomberg) -- Deutsche Bank AG Chief Executive Officer Christian Sewing is targeting the investment bank for “tough cutbacks,” notably in equity trading, in a campaign to restore market confidence following the breakdown of takeover talks with Commerzbank AG.

“I can assure you: we are prepared to make tough cutbacks” to the securities unit, Sewing said Thursday at the bank’s annual shareholders’ meeting in Frankfurt. The CEO said he’s “rigorously focusing” on building up profitable and growing businesses.

Sewing didn’t say where the cuts would be, but he highlighted businesses where they’re unlikely to happen, such as origination and advisory as well as as foreign exchange, global credit trading and U.S. commercial real estate. He didn’t mention equities trading, an omission that was intentional, according to a person familiar with the matter.

The CEO has sped up cuts to the struggling investment-banking unit since taking over last year, but the measures failed to lift the stock. Encouraged by the German finance minister, Sewing explored a merger with Commerzbank AG to end what Deutsche Bank has called a “vicious circle” of declining revenue, sticky expenses, a lowered credit rating and rising funding costs, but the talks collapsed last month. That’s left investors guessing what’s next for Germany’s largest bank.

Shares of Deutsche Bank fell 2.3% to 6.46 euros at 2:15 p.m. in Frankfurt, after reaching a record low of 6.35 euros before the CEO’s remarks. The stock has slumped more than 40% in the past year.

Transaction Bank

Several large investors as well as analysts have long called for deeper cuts to the investment bank. The unit, which tied up two thirds of the bank’s risk-weighted assets, has seen revenue decline for eight straight quarters and recorded a loss in the past two. New regulations after the financial crisis have made the business costlier to conduct, while negative interest rates in Europe erode other sources of income.

Bloomberg reported last week that Deutsche Bank is considering aggressive reductions to the equities trading business and more limited ones across the rest of the investment bank, with its staff of 38,000, and that Sewing is looking to give more visibility to a unit that provides cash management and trade finance to companies, a bright spot in the investment bank.

Sewing highlighted that business, known as the global transaction bank and led by Stefan Hoops, in his speech Thursday, saying the business will get greater independence and the “freedom and the resources to fully exploit its potential.”

Sewing’s speech also highlighted the achievements of two other top executives who were promoted relatively recently, DWS Group CEO Asoka Woehrmann and Chief Operating Officer Frank Kuhnke. He didn’t mention any other executives, even though several of them, including investment banking head Garth Ritchie and Chief Regulatory Officer Sylvie Matherat, have come under criticism.

Under Chairman Paul Achleitner, Deutsche Bank has made a series of smaller cutbacks to the investment bank, while shying away from more decisive measures. Achleitner, in a separate speech, said Sewing has the full support of the board of directors for his measures.

The chairman, seen as a backer of a big investment bank, has come under increasing criticism for his oversight of the bank. Representatives of the Qatari royal family, Cerberus Capital Management and HNA Group have internally discussed pushing for Achleitner’s exit before his term expires in 2022, people with knowledge of the matter said before Thursday’s meeting.

Several other shareholders in Frankfurt urged the chairman to step down, while signaling support for the CEO and his plan.

Achleitner said while he had made mistakes, he was not “the root cause of all evil.”

(Updates with chairman’s comment in final paragraph.)

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, James Hertling

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