The Q1 blues

Another 'meh' restructuring plan for Deutsche Bank

deutsche bank, john cryan and christian sewing
John, why didn't you tell me? Source: Reuters

Deutsche Bank’s spokesman tweeted a picture this morning of new CEO Christian Sewing preparing for his first analyst call. Given the results he was preparing to release, it probably wasn’t the happiest of times.

Germany’s largest bank reported a massive year-over-year drop in first-quarter net income, down from €575 million to just €120 million. That was below analysts’ already pessimistic expectations. Add the fact that first quarters are supposed to be money bringers for banks, and that US rivals and even European rivals like Credit Suisse performed better, and it’s a doubly bad sign for 2018.

None of this can really be put on Mr. Sewing, who took over as chief executive less than a month ago, replacing the unceremoniously ousted British banker John Cryan. What he can be judged on, at least to begin, is the rather underwhelming strategic overhaul he announced together with the quarterly results.

The headline that Deutsche Bank wants you to read is that it’s going back to its roots and away from the Wall Street ambitions it held before the financial crisis. Take the CEO at his word, and you’d be made to believe that no stone will be left unturned as the bank aims to reduce its reliance on investment banking — long a trouble spot and the key area where first-quarter profit collapsed.

We’ve been here before.

Specifically, Deutsche said that its US bond trading business will be scaled back. Global equities trading is also under review. Instead, Deutsche will focus on “more stable revenue sources and strengthen its core business lines,” according to a statement. Europe will be a bigger focus than the United States. And by 2021 the goal is for 65 percent of net revenue to come from private and commercial banking, asset management, and global transaction banking.

That’s not as big a change as you might think. Those divisions currently make up about 62 percent of Deutsche Bank’s net revenue. Bumping that up by 3 points is hardly revolutionary. Beyond that, Mr. Sewing made clear that there would be more job cuts in investment banking and that costs in general would be brought under control, including by trimming down the management board.

We’ve been here before. Similar promises were made when Mr. Cryan, known as a ruthless cost-cutter, was appointed CEO back in 2015. Just like when Mr. Cryan was appointed, shareholders for now are giving Mr. Sewing a reprieve — the bank’s stock price fell 2 percent on Thursday but remains up by around 7 percent in the past month.

But for Deutsche’s new cost-cutting plans and reduced reliance on investment banking to be credible, the bank will need to get more specific. Given that Mr. Cryan was let go in large part because he didn’t move fast enough, Mr. Sewing might not want to wait too long, either.

Michael Maisch is a senior financial editor with Handelsblatt in Frankfurt. Christopher Cermak adapted this story into English for Handelsblatt Global. To contact the author: Maisch@handelsblatt.com

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