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MarketScreener Homepage  >  Equities  >  Xetra  >  Deutsche Bank AG    DBK   DE0005140008

DEUTSCHE BANK AG

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Deutsche Bank : CEO Signals More Cuts to Investment Bank--2nd Update

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05/23/2019 | 02:48pm EDT

By Jenny Strasburg

FRANKFURT -- Deutsche Bank AG Chief Executive Christian Sewing said he is prepared to make "tough cutbacks" at the troubled lender's investment bank, his strongest public admission yet that the business needs a dramatic overhaul.

But he asked investors attending the bank's annual meeting on Thursday to wait for details, pleading for their support 14 months into his tenure as CEO. Mr. Sewing acknowledged that executives expected a deluge of criticism about performance and high-profile compliance failures.

He called the decline in the bank's share price a personal motivator for him even as shares hit another record low of EUR6.35 in Frankfurt. The share price has declined 41% in the past year.

Mr. Sewing said the bank's management is prepared to make deep cuts at the investment bank, which last year contributed 52% of the bank's revenue. He said the bank would focus on profitable and growing businesses but didn't say where cuts are aimed.

Analysts and investors have demanded clues about what comes next after Deutsche Bank last month called off merger talks with rival Commerzbank AG. Some investors have called for the bank's money-losing equities business to be dramatically scaled back if not closed, for example. The business lost about EUR750 million ($837 million) last year globally, The Wall Street Journal has reported.

Mr. Sewing didn't discuss that or other struggling businesses, instead focusing on the positives. Executives are still hammering out an investment-bank restructuring they hope to unveil before the end of summer, a person close to the bank said.

Investors have expressed doubts about the current strategy but are wary of a costly overhaul that could trigger another dilutive capital increase.

"We can't quite see where money is made or where money is burned in the bank," a representative of shareholder Union Investment told bank executives Thursday during public remarks at the meeting. She criticized executives for shying away from detailed discussions with investors about strategy failures and plans for fixing them.

Other investors said they have been patient while continuing to lose money.

Investment-banking chief Garth Ritchie faced especially harsh criticism for declining performance contrasted with his EUR8.6 million in pay last year, more than any other management-board member including the CEO.

Mr. Sewing highlighted growth plans for the transaction bank, a historically important unit for Deutsche Bank that finances companies' global trade flows and handles cash for corporations and governments. Mr. Sewing said the bank has "frequently paid too little attention" to those businesses.

Executives have discussed breaking the transaction bank away from the rest of the investment bank to highlight its stronger profit margins, according to people familiar with the matter. The unit's newly installed German executive is poised to gain more power.

"Under Stefan Hoops's leadership, the transaction bank will be given the freedom and the resources to fully exploit its potential," Mr. Sewing said, pointing to its business in Asia as a region primed for growth.

The bank also "has big plans" for DWS, its asset-management business, Mr. Sewing said, which it wants to make a top-10 global asset manager. The ambitious growth target would require the almost doubling of DWS's assets and most likely some kind of merger or joint venture to achieve that goal. DWS has held talks with UBS Group AG and others about combining asset-management businesses, The Wall Street Journal and other outlets have reported, but no deal has emerged.

Mr. Sewing suggested Deutsche Bank would still consider a merger deal involving DWS, saying its growth targets are "within reach if we continue to grow organically and if we remain open to other strategic options as and when they present themselves." The bank last year floated about 20% of DWS in a public share offering.

"DWS is part of our plan to boost profitability at the group level," Mr. Sewing said.

Mr. Sewing said the bank's reputation and businesses have suffered from repeated investigations and compliance issues. "We must further strengthen our controls," he said.

Chairman Paul Achleitner, who faced a shareholder challenge to his leadership, opened the meeting saying the lender is on the right track despite a year "fraught with setbacks," including new regulatory investigations and share declines.

Mr. Achleitner solidly survived a shareholder challenge to remove him from the board, with 90% of votes cast against the proposal. In a separate vote, he received 71.6% approval for his 2018 performance as chairman, compared with 84.4% last year.

Three executives also soundly survived no-confidence votes against them by shareholders. Two of those executives Mr. Ritchie and regulatory chief Sylvie Matherat -- faced the biggest risks due to investor ire over declining profits and rising compliance issues. For both, 82% of voting shareholders rejected the no-confidence proposals.

The same two executives received a more-dismal 61% approval for their 2018 performance, compared with roughly 75% approval for the other senior executives.

Mr. Achleitner told investors in a crowded auditorium that the decision not to merge with Commerzbank was the right one because the deal's risks outweighed its potential benefits.

He also said he didn't feel political pressure to pursue the talks, and the decision to begin and end discussions were the management board's.

Without a merger, Deutsche Bank would have to grow organically, Mr. Acheitner said.

Mr. Sewing said the potential Commerzbank merger was an opportunity the bank had to consider. Deutsche Bank now needs a "clear focus" and must adjust its business divisions while remaining global, with a strong presence in the U.S. and Asia, he said.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

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Financials (€)
Sales 2019 24 593 M
EBIT 2019 2 510 M
Net income 2019 1 113 M
Debt 2019 -
Yield 2019 2,37%
P/E ratio 2019 12,11
P/E ratio 2020 8,22
Capi. / Sales 2019 0,50x
Capi. / Sales 2020 0,49x
Capitalization 12 330 M
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Mean consensus UNDERPERFORM
Number of Analysts 25
Average target price 7,17 €
Spread / Average Target 20%
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Managers
NameTitle
Christian Sewing Chief Executive Officer
Karl von Rohr Co-President & Chief Administrative Officer
Garth Ritchie Co-President & Co-Head-Corporate & Investment Bank
Paul Achleitner Chairman-Supervisory Board
Frank Kuhnke Chief Operating Officer & Member-Management Board
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