After a couple of weeks of internal leaks and very public speculation after three years of turmoil, Deutsche Bank yesterday canned John Cryan, its embattled British CEO, in favor of Christian Sewing, co-president of the private and commercial bank who joined it as an apprentice in 1989. His primary challenge among several, as Reuters reports JP Morgan analyst Kian Abouhossein puts it, will be to “quickly come up with a coherent strategy” for Germany’s largest lender.
Probably the major question facing Sewing, observe Bloomberg’s Steven Arons and Nicholas Comfort, is whether to scale back on the investment bank — which is “both Deutsche Bank’s biggest source of revenue and a perennial laggard against U.S. giants.”
“They are in a mess and the mess starts with the board,” Carlo Besenius, CEO of Creative Global Investments in Luxembourg tells them. “‘They won’t get shareholder credibility’ unless struggling businesses are shut and they ‘rebuild from within.’”
The New York Times’ Jack Ewing says that, unlike most of the rest of the financial world, the nearly 150-year-old, Frankfurt am Main-based institution has yet to recover from the global banking crisis of 2008. “Never-ending turmoil at the bank — Germany’s largest lender — including three straight years of losses, a plunging share price, and a troubled investment bank, cost [Cryan] his job,” he writes.
“Mr. Sewing, 47, is the fourth person in four years to hold the title of chief executive or co-chief executive at Deutsche Bank. He represents a younger generation of managers but will face the same set of problems that have bedeviled his predecessors — problems that have roots going back years or even decades and stem largely from Deutsche Bank’s ambition to be a major investment bank.”
Indeed, “given [Sewing’s] background in credit risk and commercial banking, it could be seen as a signal of a move from investment banking,” Colin McLean, managing director at SVM Asset Management, tells CNBC’s Silvia Amaro in an email.
“The past few weeks have been full of noise and I know from many personal conversations that you have been concerned and still are. I am also aware that many of you greatly appreciate John Cryan — just as I do,” Sewing wrote in a letter to his colleagues this morning.
But the bank has been bleeding under Cryan's tenure, posting “an annual loss for 2017 of €500 million ($610 million). That followed losses of €1.4 billion ($1.7 billion) for 2016 and €6.8 billion ($8.4 billion) for 2015,” reports Ivana Kottasová for CNN Money. “Cryan closed hundreds of bank branches and axed tens of thousands of jobs, but his efforts haven’t been enough to bring the company back into the black.”
Sewing sought to quickly assure not only his colleagues but also his investors that he has a handle on the issues, and a 3% boost to its share price this morning indicates some success in doing so.
“We'll thoroughly analyze how we want to position this [investment banking] pillar of our bank in a difficult market environment,” Sewing also said in his missive, CNBC’s Amaro points out. “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.”
It may also be positioning itself for an alliance.
“The dismissal of Mr. Cryan, a former investment banker, and the elevation of Mr. Sewing struck investors and executives at other banks as moving Deutsche Bank closer to a potential merger with another European bank, possibly in Germany. Such a possibility has long been discussed. A smaller, more regionally focused Deutsche Bank could make a match-up more pragmatic, bankers and investors said,” writes Jenny Strasburg for MarketWatch. “Deutsche Bank didn't immediately comment.”
In the meantime, Sewing had one last thought this morning.
“Finally, there is one thing that’s particularly important for me: we should focus less on ourselves and more on our clients. They are our reason to be. And our approach should be to offer them convincing solutions and not just products. If we add value for our clients, we deserve our share of it — but only then.”
Now when was the last time your banker told you that?