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Deutsche Bank Makes the Wrong Kind of Enemy

Elisa Martinuzzi

(Bloomberg Opinion) -- As Deutsche Bank AG shares plumb new lows, investors appear to be losing patience with Chairman Paul Achleitner. So, too, does the lender’s principal regulator, the European Central Bank. Therein lies the surprise. The nudge, even if gentle, marks a new era for the watchdog and its approach to the industry.

Senior ECB officials have suggested that his exit would be in the best interests of Deutsche Bank, according to Bloomberg News. The lender’s biggest shareholders, among them the Qatari royal family, have separately discussed seeking the chairman’s ouster before his term expires in 2022, according to the report.

That investors are putting pressure on Achleitner, who has chaired the supervisory board for seven years, is inevitable. He has overseen three management groups, four strategic overhauls – and still the market values the German behemoth at just one-quarter of the tangible book value of its assets, less than any of its European peer group.

Just a month after Deutsche Bank abandoned plans to combine with its smaller domestic competitor Commerzbank AG, its insistence that it can carry on with just a delicate restructuring of its investment bank looks to be losing the support of key stakeholders.

That the ECB is even prepared to consider toppling one of the most powerful figures in corporate Germany and European banking shows the depth of its concern. For Deutsche Bank, the status quo will no longer cut it.

Under Achleitner, the lender had sought to maintain an investment banking business that could compete with its Wall Street peers. The Commerzbank deal would have helped to cement that vision of creating a European champion.

Yet Deutsche Bank’s securities unit remains painfully inefficient, and a merger would have done little to address that. In 2018, the unit had a cost-income ratio of 95% and still absorbed about two-thirds of the firm’s leverage exposure and risk-weighted assets. Dwindling revenue erosion and stubbornly sticky costs have hurt the group’s profitability. To be sure, there’s reason why securities trading has been so hard to give up: The plethora of smaller state-owned banks has kept margins in Germany’s commercial banking market under pressure.

By breaking with the Achleitner legacy – as a banker at Goldman Sachs, he advised Deutsche Bank on its $9 billion acquisition of Bankers Trust Corp. in 1999 – the ECB is indicating a bigger revamp at Deutsche Bank is probably warranted.

Deeper cuts at the securities unit, particularly in the U.S., would be one place where Chief Executive Officer Christian Sewing can start. But cutting the investment bank further will be costly, and Sewing may need to tap investors for yet more cash to help fund the move.

Under Andrea Enria, its second chairman, Europe’s top banking supervisor is slowly coming into its own. By signaling its discontent with Germany’s biggest bank, the five-year-old regulator could hardly have picked a more visible emblem. There may be more pain to come for shareholders – but the ECB’s willingness to be more than just a bystander should be welcome news for investors.

To contact the author of this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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