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 (May 21, 2019).
Deutsche Bank AG's shares traded at an all-time low Monday just weeks after talks with Commerzbank AG failed. Now bank officials, facing fresh investor doubts about the lender's ailing investment bank and overall strategy, are bracing for a barrage of criticism from shareholders at the bank's annual meeting Thursday in Frankfurt.
Shares hit a new intraday low of EUR6.617($7.382) in early afternoon Frankfurt trading. Deutsche Bank shares are down 39% in the past year as it loses market share while battling to stem compliance failures and high costs. German officials have fretted over its ability to compete on its own, potentially hurting Europe's biggest economy, which itself is under pressure.
UBS Group AG analysts on Monday downgraded Deutsche Bank shares to "sell" from "neutral," citing a lack of strategic options and that the investment bank "has been losing revenues in absolute and relative terms." Talks with Commerzbank broke down last month, leaving questions about Deutsche Bank's immediate prospects.
Chairman Paul Achleitner and co-president Garth Ritchie, who oversees the investment bank, face individual shareholder proposals at the annual meeting aimed at their performance, as do two other senior bank officials. Deutsche Bank has told investors it supports them.
The two most influential shareholder-advisory firms this month took the rare step of urging investors to punish the bank's top executives en masse at this week's meeting by withholding confidence votes for the bank's two main boards.
The votes are often a formality, and largely symbolic. But this year they could fuse investor frustration over Deutsche Bank's continuing yearslong decline, Glass Lewis & Co. and Institutional Shareholder Services said in separate advisory reports.
Mr. Achleitner has met with around two dozen institutional investors in recent weeks, defending his oversight and the performance of executives, according to people familiar with the discussions.
In a private, personal plea, Mr. Achleitner and Chief Executive Christian Sewing wrote to BlackRock Inc. and other large investors this month asking them to refute the proxy advisers' recommendations and support Deutsche Bank's boards. The two officials cited their "different interpretation of the progress that we have made," according to a May 10 letter to BlackRock executives reviewed by the Journal. "We hope you will find our arguments persuasive."
Investors have questioned some 2018 executive pay packages, particularly a EUR3 million "functional allowance" the supervisory board awarded Mr. Ritchie, some of the people say. The cash allowance, described as for Brexit-preparation work, was equivalent to his base salary, the maximum that compensation rules allowed. It made him the highest-paid management-board member, with a total of EUR8.6 million ($9.6 million), more even than Mr. Sewing earned.
Mr. Achleitner is also chairman of the compensation committee, adding to pressures on him to defend the investment bank's performance, the people said.
Some investors want dramatic changes, such as closures of entire trading businesses. After he took over as CEO in April 2018, Mr. Sewing cut staff in the money-losing equities business, shrank other businesses and cut overall investment-bank costs. But many investors and analysts saw that as tinkering around the edges.
Executives this year have eyed equities, equity derivatives and portions of rates trading for downsizing, The Wall Street Journal reported in March. They have declined to comment publicly on any potential strategy shifts.
Some executives hoped the bank could unveil a retooling of parts of the investment bank weeks ago, but the work has taken longer, people close to the bank said.
ISS noted it previously gave Deutsche Bank executives the benefit of the doubt, citing difficulties in turning around a big bank in tough markets. But ISS this month called for a protest vote: "We believe it is time for shareholders to hold the boards accountable for the many years of substantial monetary and reputational costs to the bank borne by shareholders."
Glass Lewis singled out troubles with the investment bank and U.S. operations as focuses of investor ire. Debt-rating agencies have aired concerns about the bank's ability to make money. Again the investment bank, long fueled by trading revenue, is key: It contributed just over EUR13 billion, or 52% of the bank's total net revenues, in 2018. But the unit's revenues have been in steady decay.
Deutsche Bank said its share price doesn't reflect its strong financial position and that concerns raised are legacy matters. It noted the bank was profitable in 2018 for the first time since 2014, and said, "We have significantly improved our risk and control systems in the last three years and we will continue to do so."
There have been bright spots. Deutsche Bank regained some revenue-based market share in the first quarter in the business of advising on public offerings, leveraged buyouts and corporate mergers, according to Dealogic data.
Deutsche Bank has faced persistent concerns about legal liabilities tied to money-laundering controls in Europe and the U.S. It has said it is improving its oversight.
Financial-crime specialists in 2016 and 2017 recommended reporting transactions involving legal entities tied to Donald Trump and Jared Kushner but were rebuffed internally, the New York Times reported Sunday. A Deutsche Bank spokeswoman told the newspaper: "At no time was an investigator prevented from escalating activity identified as potentially suspicious." A spokeswoman for the Trump Organization said the firm didn't know of such flagged transactions. A Kushner Cos. spokeswoman said any money laundering allegations were "totally false."
Write to Jenny Strasburg at email@example.com
(END) Dow Jones Newswires
May 21, 2019 02:47 ET (06:47 GMT)
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