Biting bullets

Deutsche Bank boss Sewing targets cost cuts as top priority

Deutschland Frankfurt 09 04 2018 Christian Sewing re neuer Vorstandsvorsitzender und der scheid
Performance brief: Stay head and shoulders above your predecessor. Source: Imago/Sepp Spiegl

Christian Sewing has taken on a big job as head of Germany’s largest bank, but he has no doubts about where to begin. Deutsche Bank has to return to profit and must meet its 2018 targets on both the revenue and cost fronts to do so.

Easier said than done, for sure. But Mr. Sewing minced no words in an open letter to employees about the bank’s repeated failure to meet these targets in the recent past. “There may have been good reasons for it here and there, but it has harmed our bank. The new leadership team will no longer accept it,” he wrote.

He goes on to promise prompt implementation of “tough decisions.” Since management has much more control over costs than revenue, there is little doubt that Mr. Sewing is talking about job cuts and other savings as Deutsche struggles to right itself.

It was the failure of John Cryan, the British turnaround specialist brought in as chief executive three years ago, to return to profit that cost him his job in Sunday’s boardroom shakeup. Whatever success Mr. Cryan had in cutting costs and restructuring the bank’s business, it wasn’t decisive or quick enough for investors. In his message to employees, Mr. Sewing paid tribute to his predecessor but declared, “We have to make decisions more clearly and more quickly.”

“We have to make decisions more clearly and more quickly.”

Christian Sewing, CEO, Deutsche Bank

This is the task facing the 47-year old CEO, who started his career at Deutsche 29 years ago as a trainee and pursued it solely at the bank except for two years at a competitor. After years of ups and downs under markedly different bosses — ranging from flamboyant Swiss Josef Ackermann to Anshu Jain, an unassuming Anglo-Indian, and Mr. Cryan, a curmudgeonly British auditor — the “German Bank” is coming under command of the homegrown German boss. And it is the first time in 16 years that a non-German has not at least shared the CEO title.

To this day, the Westphalia native makes his home in Osnabrück, just 30 miles from his hometown of Bünde. Even though Mr. Sewing spent time abroad with Deutsche in London, Singapore, Tokyo and Toronto, the adjective most often applied to him is “bodenständig” — which is usually translated as “down-to-earth” but literally means “rooted in the soil.”

It is the adjective used by Stephan Szukalski, head of the banking trade union DBV, in welcoming Mr. Sewing’s appointment as CEO, praising him as “a down-to-earth, reliable young man, who can certainly steer Deutsche Bank into quieter waters.”

It is this quality of Germanness that is the key to Deutsche Bank’s future, more than the details about the future mix between investment and commercial banking at a 148-year old institution that throughout its history, has been the quintessential universal bank. Germans are still in the minority among the 10 members of the executive board who are staying, but the tone from the top will clearly be rooted in Mr. Sewing’s native soil.

Garth Ritchie, Markus Schenck
Garth Ritchie, right, is returning as a deputy CEO, seen here with Markus Schenck, who isn't. Source: Handelsblatt

His manifesto to employees spoke of the need to adapt to the changing landscape in banking, which means investing in the bank’s strengths but also “freeing our capacity for growth by pulling back where we can’t operate with sufficient profit.” Until now the head of retail and corporate banking at Deutsche, Mr. Sewing spoke of the need to offer clients “convincing solutions and not just products.”

Deutsche is still catching up with other banks that have retrenched from their global ambitions in the wake of the 2008 financial crisis. Even Goldman Sachs has been forced to acknowledge that the days of fat profits from trading in derivatives are gone, as the US investment bank beefs up its own lending activities.

All of this will rest squarely on Mr. Sewing’s shoulders. The chaotic circumstances of his appointment via a teleconference called at short notice have left the bank’s board weakened and divided. Paul Achleitner, the supervisory board’s chairman, has come under heavy criticism for his failure to consult with other board members about possibly replacing Mr. Cryan, and then doing so in a manner that left them out of the decision-making process.

The tumultuous six-year tenure of Mr. Achleitner was already raising questions about his suitability for the job amid management turnover and strategic U-turns. It is unlikely that the board will dump Mr. Achleitner during a management transition, but his support on the board and among key investors has ebbed and his future is anything but secure.

New members are slated to join the board in coming months, including former Merrill Lynch boss John Thain. “We should give the bank the chance to carry out these changes, and to make adjustments in investment banking,” said one of the top 10 shareholders in Deutsche.

Mr. Sewing was appointed to the executive board in 2015 and became co-deputy CEO in charge of retail and corporate banking in 2017. Sunday’s announcement of his promotion also disclosed that his fellow co-deputy, Marcus Schenck, who headed up investment banking, will be leaving the bank. This left Garth Ritchie, who shared those duties, the sole head of the sector. He and Karl von Rohr, a legal expert, were named the new deputies to Mr. Sewing.

Mr. Achleitner told Frankfurter Allgemeine Zeitung that Mr. Schenck’s departure did not mean the bank was turning away from investment banking. He did acknowledge that Mr. Schenck wanted to grow the sector in ways the bank could not go along with. Mr. Achleitner, however, vows that investment banking remains essential to Deutsche’s role as a universal bank.

Several Handelsblatt reporters contributed to this article. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the author: d.delamaide@extern.handelsblatt.com

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