Deutsche Bank’s new chief faces familiar questions over strategy

FRANKFURT / Reuters

Christian Sewing must quickly come up with a coherent strategy for Deutsche Bank after the retail banking veteran was promoted to chief executive of Germany’s largest lender.
Sewing, 47, was appointed after a crisis meeting to discuss how to end three years of losses. He replaces Briton John Cryan who failed to meet cost targets, and his elevation could signal a retreat from decades of investment banking expansion.
Sewing, who has been with Deutsche Bank since 1989, said Deutsche would pull back from areas where it was not sufficiently profitable. He said he would analyse how Deutsche Bank wants to position its investment bank in a difficult market environment but left open what structural measures he could take.
Analysts and investors swiftly demanded clarity over where growth would come from.
“What matters, and in our view Deutsche Bank has been missing for several years now, is a clearly defined strategy,” JP Morgan analyst Kian Abouhossein said on Monday.
“Deutsche Bank’s problem is not the CEO, as speculated by the press, but different stakeholders with different interests, with little evidence of
commitment to changing the organisation in the interests of the owners: shareholders and creditors.”
The bank’s largest investors include Chinese conglomerate HNA, US asset manager BlackRock and private equity fund Cerberus. Together they own about a third of Germany’s largest bank, which employs more than 97,000 people.
The prospect of deeper cost cuts sent shares in Deutsche Bank 2.9 percent higher in early trading, topping the STOXX Europe 600 banks index
at 0817 GMT.

NO MORE SETBACKS
In a letter to employees on the bank’s website, Sewing said that Deutsche needs to regain its “hunger for business” and set the bar for revenues higher in all businesses.
“The priority is to leverage our strengths and to allocate our investments accordingly. And at the same time we will look to free up capacity for growth by pulling back from those areas where we are not sufficiently profitable,” he said.
At the same time, its 2018 target for adjusted costs of no more than 23 billion euros ($28 billion) is non-negotiable, Sewing said. “Setbacks like in the fourth quarter of 2017 are not to be repeated under any circumstances,” he said. In the last three months of 2017, Deutsche Bank’s net loss had widened to 2.2 billion euros from 1.9 billion euros a year earlier as revenue slumped 19 percent, fanning shareholders’ discontent with a lack of clear progress in turning the bank around.
Analysts at Credit Suisse cut their price target on Deutsche Bank’s stock to 13 euros from 15 euros amid uncertainty over the lender’s future stra-
tegy and warned that it would be difficult to cut less profitable business without causing too significant a loss in shareholder value.
Cryan had been in charge since 2015 and his mandate would have expired in 2020, but investors had lost faith that he could return the bank to profitability. His fate had appeared sealed two weeks ago when reports emerged that Chairman Paul Achleitner had begun searching for a successor.

Trade war threatens central bank ‘put’
Bloomberg

A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank AG.
Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy US assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin write in a note. These purchases
have historically limited the greenback’s downside and acted as a “put” on Treasury market weakness, he wrote.
Such central bank puts are usually associated with successive Federal Reserve chairs willing to support the wider market with loose monetary policy.
While such puts have been a continuous focus for investors, markets now risk overlooking other sources of central bank support that may be slipping as the US’s “synergistic relationship with China,” comes to an end,
according to Ruskin.
“It is not a coincidence that in this recent period of dollar weakness, Treasury bonds were also soft,” he said.
“Historically, foreign central banks of sizable current account surplus countries like China, Taiwan, Korea and Thailand would have been intervening.”
According to the strategist, the “end of Chimerica” means American current account deficits are no longer financed to the same degree by Asian central bank reserve recycling of corresponding trade surpluses.