Deutsche bank CEO warns of rising pressure to consolidate

Bloomberg

Deutsche Bank AG Chief Executive Officer Christian Sewing has a stark message for the thousands of banks spread out across the European Union: bulk up or die.
“The pressure to consolidate will rise significantly in Europe,” Sewing said. An increase in regulatory requirements, in addition to an already-pressing need for investment in information technology will “overwhelm” many banks, he said.
A decade after the financial crisis, record-low interest rates are capping revenues for the region’s lenders, while legal bills and capital demands have eroded profits. At the same time, rapid technological change has eroded once-stable customer bases and forced banks to adapt their services to a marketplace increasingly dominated by the internet.
“There are 5,500 financial institutions in the euro area,” Sewing said. “But how many of them can really manage risks in a world economy where’s it’s increasingly hard to get an overview? How many are fit for a platform-economy, in which advantages of scale will count for more than ever?”
Against that backdrop, there has been speculation that Deutsche Bank itself may ultimately seek a tie-up with cross-town rival Commerzbank AG. Sewing didn’t address that speculation directly.
But Sewing reaffirmed his global ambition for Deutsche Bank, even as it withdraws from certain investment banking operations in the US and other countries.
“We stand by our corporate and investment bank even though we have recently reassessed our set-up thoroughly,” Sewing said. “Our global ambition won’t be up for debate under my leadership.”
Sewing announced widespread cuts to the investment banking division within weeks of taking over as chief executive. The lender will pull back from unprofitable areas and shift the focus to providing services with a link to Europe.
The lender cut 1,700 jobs in the second quarter, many of them front-office positions at the investment bank. It also slashed $93 billion of leverage exposure from its prime finance and US rates business.
Answering questions after his speech, Sewing said the bank’s share price will turn around within a year, if he can push through his cuts without losing revenue. According to data compiled by Bloomberg, analysts expect revenue to fall again in the third quarter, and for 2018 as a whole, before bottoming out in 2019.
“We have to keep the top line resilient,” Sewing said. “If we continue to show this for the next two or three quarters, then it will come to a revaluation” of the company.