In transition

Deutsche banking on 'Mr. Germany'

Christian Sewing of Deutsche Bank Bernd Roselieb for HB
Mr. Sewing has spent almost his whole career at Deutsche.
  • Why it matters

    Why it matters

    Employees and investors are nervous about Deutsche Bank’s course amid plummeting stock values and looming layoffs.

  • Facts

    Facts

    • Deutsche Bank is implementing a restructuring plan that will cut 4,000 jobs in Germany, mostly in Mr. Sewing’s division. The number of retail branches will fall to 500 from 723.
    • Deutsche wants to focus more on consulting and wealth management. There are plans for seven new consulting centers in Germany.
    • The bank plans to scale back its involvement in the real estate market, offering mortgages mostly to core customers who do other business with Deutsche Bank.
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In the old days at Deutsche Bank, co chief executive Jürgen Fitschen was nicknamed “Mr. Germany.” Back then, the other co-chief, Anshu Jain, was busy raising Deutsche’s international profile, Mr. Fitschen was tasked with reassuring the financial institution’s skeptical German investors.

Now all that’s changed. Mr. Jain was forced out last summer and Mr. Fitschen has helped John Cryan settle in as chief executive. In May, Mr. Fitschen will retire and Mr. Cryan, a Brit who prefers London over Frankfurt, will become the sole leader of Germany’s largest financial institution.

But Deutsche still needs someone with a focus on Germany. Christian Sewing, the head of the bank’s corporate and retail business, will inherit the unofficial mantle of “Mr. Germany” and assume the unenviable task of selling Mr. Cryan’s much-needed but bitter medicine to the bank’s anxious rank and file.

“It makes sense because the majority of the revenue in Germany comes from my area,” Mr. Sewing told Handelsblatt in an interview.

“We want to arrive at a different balance in our business, with more of an emphasis on securities consulting. In an era of extremely low interest rates, that's good for our customers.”

Christian Sewing, Retail and Corporate Business, Deustche Bank

Mr. Cryan wants to streamline Deutsche by cutting 9,000 jobs worldwide, including 4,000 in Germany, mostly in Mr. Sewing’s division. The bank plans to reduce its German retail branches to 500 from the current 723 by the end of 2017.

“Our goal is to implement the job cuts in the most socially responsible way possible,” Mr. Sewing said. “We’ve always done that in the past, and I’m confident that we will succeed in doing it this time.”

But the looming layoffs, coupled with Deutsche Bank’s abysmal first quarter performance, have shaken confidence in Mr. Cryan’s leadership. The bank’s stock price plummeted to an all-time low in February, at one point losing more than 30 percent of its value.

Adding insult to injury, Deutsche lost its dominance in German mergers and acquisition to arch rival Goldman Sachs. The bank also slipped to fifth place in total investment banking commission income.

And perhaps worst of all, Mr. Cryan had to tell investors that Deutsche wouldn’t return to profitability this year, after taking a €6.8 billion, or $7.6 billion, hit in 2015 due to regulatory fines and write-offs.

The bank had to pay $2.5 billion alone to U.S. and British authorities for its role in fixing benchmark interest rates. Deutsche still faces an open investigation into allegations that its London and Moscow offices laundered up to €10 billion for wealthy Russian clients.

Amid all the turmoil, Moody’s has put Deutsche on notice, threatening to downgrade its senior bonds and deposit ratings if Mr. Cryan’s restructuring plan doesn’t turn the situation around.

Despite all the bad news, Mr. Sewing sees the glass as half full.

Despite all the bad news, Mr. Sewing sees the glass as half full. The bank managed to increase its revenue to €33 billion last year, he said, despite facing a particularly difficult environment.

“The reactions are exaggerated because the bank is doing much better than perceived,” Mr. Sewing said. “When you achieve such high revenues in that kind of a year, it shows how strong the bank is in its core operations, particularly in my area. We also have solid fundamentals when it comes to capital and liquidity.”

But sources at Germany’s cooperatively run savings banks, known as Sparkassen, told Handelsblatt that many customers with deposits over €100,000 are leaving Deutsche Bank and seeking refuge with them. Mr. Sewing dismissed the rumor.

“We don’t see anything unusual, even it may be the case that a small minority of customers are spreading their deposits across several different banks,” he said. “Our deposit volume has remained stable.”

Deutsche is hiring additional consultants to better serve individual investors and corporate clients, Mr. Sewing said, and there are plans to build seven large consulting centers in Germany. The centers would offer Internet chat and video consulting after business hours.

“We want to arrive at a different balance in our business, with more of an emphasis on securities consulting,” Mr. Sewing continued. “In an era of extremely low interest rates, that’s good for our customers. And when our customers feel like they’re being taken care of, it’s good for our growth.”

 

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The bank also plans to hire an additional 100 staff at its equities trading operations, Handelsblatt can confirm. Earlier, Reuters news agency reported that Deutsche planned to bring on additional staff in the second quarter.

Deutsche has set the ambitious goal of becoming one of the top five wealth managers in the world. The bank is currently number one in Germany and number seven globally.

“We need to invest more in markets like America and Asia, so that we can take another step forward,” Mr. Sewing said. “We will adjust our strategies on both continents.”

“If you want to win large clients, it’s advantageous to be among the top five,” he added.

Critics say expanding wealth management is a fool’s errand at a time when the European Central Bank is imposing negative interest rates. Mr. Sewing, however, doesn’t see any blowback on the horizon.

“I can’t imagine that private clients will be affected,” Mr. Sewing said. “But I can’t speak for other banks.”

Clients may, however, face additional costs from Deutsche. The bank is considering charging administrative fees for accounts in the future.

“We are contemplating the right mix in terms of prices,” Mr. Sewing said. “We feel vindicated when other institutions announce the end of free accounts.”

Even as the bank expands its wealth management operations, it plans to scale bank its activity in the real estate market, which got it into trouble in the wake of the 2008 financial crisis.

“We want to be more selective,” Mr. Sewing said. “We are happy to offer mortgage loans to core customers who do other business with us. But when it’s a customer’s only product, it doesn’t make a lot of sense given the narrow margins and the challenging capital rules.”

 

Daniel Schäfer leads Handelsblatt’s financial coverage and Michael Maisch is deputy lead. Yasmin Osman writes about the banking industry from Frankfurt. Laura de la Motte is a specialist banking correspondent. To contact the authors: schaefer@handelsblatt.com, maisch@handelsblatt.com,  osman@handelsblatt.com,  delamotte@handelsblatt.com

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