By Jenny Strasburg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 9, 2018).
Deutsche Bank AG replaced its British chief executive, John
Cryan, with the senior German head of its retail bank, a switch
that signals a less ambitious future after years of grim financial
results and sputtering attempts to regain a spot among global
investment-banking powerhouses.
Germany's biggest bank, struggling after a string of
money-losing years, named as Mr. Cryan's replacement an executive
steeped in auditing, risk control and retail banking. Mr. Cryan
will leave at the end of this month, Deutsche Bank said.
New CEO Christian Sewing has spent more than 25 of his 47 years
at the Frankfurt-based lender, starting as an apprentice banker and
rising to the management board three years ago. He has held senior
risk and audit roles in London, Tokyo and Toronto but has a low
profile outside of Germany.
The departure 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. Deutsche Bank didn't immediately comment.
The CEO change, which is effective immediately and came after a
Sunday evening conference call of the bank's supervisory board,
also presages a lower-profile Deutsche Bank, say people close to
the firm. The bank has been one of the few remaining in Europe with
ambitions to compete globally against the U.S.'s trading and
investment-banking powerhouses.
It has vast global trading operations and a huge presence in
complex derivatives and fixed-income securities. But regulators at
the European Central Bank, as well as in the U.S., have become wary
of its size and its weakened financial position. The ECB declined
to comment.
Investors and current and former employees expect Deutsche Bank
to further curtail its trading operations, once the cash cow of the
investment bank, in moves described by people close to the lender
as driven partially by pressure from European and U.S. banking
regulators.
While investment banks broadly have struggled since the
financial crisis from a mix of tighter regulation and muted client
activity, the German bank has slumped worse than its counterparts.
European banks including Deutsche Bank were slower than U.S. peers
to repair their balance sheets in the years right after the 2008
meltdown. That hurt Deutsche Bank later when it had to dial back
risk and raise capital. Also, Deutsche Bank still has a greater
share of its revenue tied to volatile investment-bank and trading
businesses than its peers.
Regulators have heard concerns about Deutsche Bank from other
big banks that trade with it, according to people familiar with the
matter. Among concerns voiced, the people say, is that although
Deutsche Bank's capital cushion is stable after it raised billions
of dollars in a share sale last year, a big market shock,
unexpected legal fine or other crisis could set market confidence
in Deutsche Bank back to where it was in late 2016 when
counterparties pulled away, fearing a capital crisis.
Other European banks, lagging behind stronger U.S. rivals in
profitability and share performance, also feel pressures. But
Deutsche Bank has had an outsize share of internal turmoil,
exacerbated by a prolonged restructuring and an executive suite
divided over matters including bonuses and technology spending.
Tensions were bad enough in recent weeks that supervisory-board
members have been bracing for the possibility of multiple executive
departures, according to people familiar with private board
deliberations.
Since January 2016, Mr. Sewing has overseen Deutsche Bank's
private and commercial-banking division, which includes the
lender's network of German retail branches.
Mr. Cryan had been an investment banker and a finance chief at
the Swiss bank UBS AG. His high-profile predecessor, Anshu Jain,
was a consummate banker who rose to power during Deutsche Bank's
go-go precrisis years of high-leverage trading and huge
profits.
Last year, Mr. Sewing was named one of two co-presidents
reporting to the CEO he now replaces. The other co-president,
Marcus Schenck, is leaving the bank.
Mr. Cryan, a Briton brought into the CEO role in mid-2015, has
two years remaining on his contract. He said two weeks ago in a
memo to employees that he was "absolutely committed" to serving the
bank. That was in response to media reports that Deutsche Bank's
chairman, Paul Achleitner, was shopping outside the bank for
replacement CEO candidates.
As recently as last week, both of Deutsche Bank's
investment-banking co-heads were in discussions with the bank about
potentially leaving, the Journal previously reported. One has
decided to: Mr. Schenck, until recently considered a potential
candidate to one day become CEO, is departing effective next month.
He told the supervisory board before Easter that he intended to
leave, Deutsche Bank said in its statement.
The other, Garth Ritchie, will now oversee the investment bank
as its sole chief, Deutsche Bank said Sunday evening. He and
another executive, Karl von Rohr, were named presidents, replacing
Messrs. Sewing and Schenck in those positions.
Deutsche Bank has sent mixed messages to investors and employees
over the past few months. Mr. Achleitner has faced unrest among big
investors he courted who have become alarmed at Deutsche Bank's
share-price declines, people close to the bank and investors
say.
Mr. Achleitner said in a statement that Mr. Cryan played "a
critical role" at the bank, but that "following a comprehensive
analysis we came to the conclusion that we need a new execution
dynamic in the leadership of our bank." He said the supervisory
board views Mr. Sewing as "a strong and disciplined leader,"
adding, "We trust in the great ability of this bank and its many
talents."
Deutsche Bank stock is at EUR11.35 ($13.94), down 29% this year.
The shares have lost more than half their value in less than three
years.
Some of the people said Mr. Achleitner told investors and
others, including some outside executives he approached to discuss
the CEO role, that Deutsche Bank has the right strategy but hasn't
executed it well enough. Mr. Achleitner has told financial
executives that the market misunderstands Deutsche Bank, which he
said mainly needs new energy in its executive ranks.
The message wasn't persuasive, said one person close to a major
investor and other people Mr. Achleitner spoke with.
Some investors said they are aghast at how tumultuous the past
few weeks have been, with tales of Deutsche Bank infighting and
private CEO discussions spilling into the open. A lot of that focus
has fallen on Mr. Achleitner.
"Mr. Achleitner will have to explain this decision much more
fully, because [Mr. Cryan] is his hand-picked CEO," said
Hans-Christoph Hirt, head of Hermes EOS, which advises shareholders
holding just over 0.5% of Deutsche Bank shares.
Last week, banking analysts publicly disagreed with Mr.
Achleitner's notion that Deutsche Bank's strategy is on track.
JPMorgan Chase & Co. analysts called for Deutsche Bank to
shed U.S. corporate clients and shrink its trading business there.
They said the lender had little hope of making enough money to
justify its U.S. investment-banking ambitions.
Another analyst expressed frustration that Deutsche Bank wasn't
accepting that its costs are too high compared to profits, with no
easy way to fix the problem. "To get really excited about Deutsche
shares we need to see a full strategic overhaul, rather than
tinkering," wrote Stuart Graham of Autonomous Research, calling for
"radical action."
Patricia Kowsmann contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
April 09, 2018 02:47 ET (06:47 GMT)
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