Deutsche Bank’s brutal share slump leaves CEO on back foot

Bloomberg

Deutsche Bank AG Chief Executive Officer Christian Sewing gave himself one year to turn around the lender. Six months into his tenure, urgent questions about the future are becoming louder as the stock slumps to record lows.
After disappointing investors by posting the lowest third-quarter revenue in eight years and abandoning some targets, the stock rout worsened, producing Deutsche Bank’s worst week since late March. Contraction at the investment bank, the biggest contributor to the top line, and failure to reinvigorate growth are adding to signs Sewing is struggling to stop the decline.
“The appalling year-on-year trends in sales and trading seem to confirm what we have feared for some time: the franchise has been hurt by cost-cutting,” Kepler Chevreux analysts led by Jaques-Henri Gaulard said. “Even though the restructuring program seems to be on track, it will not be enough.”
The stock’s decline limits Deutsche Bank’s strategic options for now, though it could accelerate the potential tie up with rival Commerzbank AG, said to be the favoured option of the German government. Policy makers in Berlin are also open to the bank merging with a European player once the banking, fiscal and capital-markets union is complete, people familiar with the matter have said, asking not to be identified.
Deutsche Bank’s shares fell 3 percent in Frankfurt, extending the weekly slump to 11 percent, as a broader market selloff added to the earnings disappointment. The stock had declined for seven straight trading days and trades at a record low.
Sewing has ruled out mergers for as long as the bank is unprofitable and the supervisory board in September gave its blessing to his short-term strategy that’s focused on cuts while shying away from transformative decisions.
Deutsche Bank now predicts a slight decline for the full year, after earlier guiding for a flat result. While lower costs should help the lender post its first annual profit in four years, Sewing said the focus now has to be on growing the top line without compromising controls — something his predecessor John Cryan pledged twice but failed to deliver.
Investment bank revenue has been hit by the cost cuts, Chief Financial Officer James von Moltke said on the earnings call, though he emphasised that, in a quarter-over-quarter comparison, the decline was “in line with the broader market.”
“The latest results have tarnished management’s credibility. Sewing needs to show now how he wants to grow revenue,” said Michael Huenseler, a funds manager at Assenagon Asset Management. “The low share price is locking Deutsche Bank deeper into its vicious circle.”