After receiving a call from a friend, Christian Sewing raced down the German Autobahn to meet a customer in a former factory town. Credit traders have been keeping an eye on Deutsche Bank, where Mr. Sewing has been regaining his health since taking over five years ago.
After receiving a call from a friend, Christian Sewing raced down the German Autobahn to meet a customer in a former factory town. Credit traders have been keeping an eye on Deutsche Bank, where Mr. Sewing has been regaining his health since taking over five years ago.
After the collapse of Credit Suisse and two regional U.S. banks in March 2023, the market was looking for its next victim. The cost of insuring Deutsche Bank’s debt rose to its highest level since the pandemic.
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After the collapse of Credit Suisse and two regional U.S. banks in March 2023, the market was looking for its next victim. The cost of insuring Deutsche Bank’s debt rose to its highest level since the pandemic.
A team at the bank’s Twin Towers headquarters in Frankfurt scrambled through 15 draft messages to reassure customers that the bank was in good hands.
Before they could issue a statement, an unexpected uproar began.
“Germany is strong,” research firm Autonomous said in an email to clients. “We view this as an irrational market,” analysts at Citigroup advised. Even the bank’s regulator, the European Central Bank, blamed the turmoil on illiquidity in one corner of the market. Things quickly stabilized.
Management decided to scrap the message and let the market do the talking.
The episode demonstrated Deutsche Bank’s newfound resilience. But the upset also served as a reminder to Mr. Seeing that the German giant has not yet fully convinced markets that it has shed its reputation as the weak link in the global financial system.
It wasn’t long ago that Deutsche Bank became synonymous with banking scandals, money laundering and controversial clients including former President Donald Trump and convicted sex offender Jeffrey Epstein. Bankers set up deals for their own benefit, sometimes against shareholders. The bank had a souring relationship with regulators.
The bank was also known for its big egos and arrogant traders who sought to infiltrate Wall Street’s upper echelons. They took huge risks to try to go toe-to-toe with the likes of Goldman Sachs and JPMorgan, sometimes to the detriment of shareholders. The bank racked up losses on complex market positions that amounted to billions of dollars.
Garment has put Deutsche Bank in a stronger position. The bank makes more money on the day-to-day trading of companies and less on wild bets on the market. This made profits more stable and, combined with cost control, brought the bank back into the black. Management hopes that a decline in risk appetite has made scandals less likely.
Shareholders have not yet adequately compensated banks. Deutsche Bank’s stock price is just 6% higher than it was when Mr. Sowing took over. The bank’s price-to-book ratio, which is widely watched by investors, remains one of the lowest among major European banks.
Concerns persist about exposure to U.S. commercial real estate. The hardening of the German economy provides a tragic backdrop.
“What Mr. Sewing has inherited is a very disorganized mess and it will take a long time to rebuild,” said Alexandra Annecke, a Deutsche Bank investor and portfolio manager at Germany-based Union Investment. Ta.
Mr. Sewing, 53, said he had won an early battle to tame the bank’s culture. He quoted Boris Becker, a former avid tennis player, as saying that it is much harder to win over and over again than it is to win for the first time.
“My biggest fear right now is that people will become arrogant again,” Sewing said.
She began sewing as an apprentice at Deutsche Bank at the age of 19, just before the fall of the Berlin Wall. He rose through the ranks in less sexy fields like risk management and corporate banking, but didn’t have the bold personality of an investment banker. When he was named chief executive in 2018, he led the retail and commercial business.
He came in low. The bank had raised nearly 30 billion euros (equivalent to $32.34 billion) in capital over eight years to plug holes in its balance sheet caused by unexpected losses and fines. That was more than the market had placed on the bank as a whole.
Mr. Sewing was in contrast to his predecessor, who had several foreigners from risk-taking investment banking backgrounds who wanted to make their mark on Wall Street.
He envisioned a more humble bank, one not driven by big egos. Sometimes he suddenly appears at a meeting, quietly enters the room and leans against the wall. Then-German Chancellor Angela Merkel privately commented to Deutsche Bank officials that she had expected Sewing to be more confident when they first met.
Sewing was inspired by playing the board game “Risk” with his two sons. This game requires timely attacks and defenses to contest territory on the world map.
Explaining his strategy, Soing said: “The first thing is always to protect the homeland. And then we take advantage of the opportunity.”
Sewing downsized Deutsche Bank’s Wall Street footprint and focused on more predictable foreign exchange trading, treasury management and corporate financing.
The bank shut down its hedge fund services division and withdrew functions such as buying and selling stocks and helping other foreign banks move dollars around the world, but this lucrative business was closed down by U.S. money laundering authorities. He was faced with repeated troubles. Complex assets were collected and sold.
In the summer of 2019, when the bank distributed notices of job cuts at its London branch, British media widely reported photos of two seamstresses leaving the building after dressing senior bankers in expensive suits. Mr. Sewing was furious and personally criticized the bankers.
Colleagues say Sewing attends local events in Germany and meets with mid-sized business clients, a departure from some of his predecessors who preferred to hang out with world leaders. It is said that he is painting.
He appointed unglamorous people to important positions. He appointed a compliance executive to run its U.S. operations, and the company faces tighter restraints from U.S. regulators and two special monitors installed after regulatory settlements over lax money laundering rules and market manipulation. It is operated under staff members.
He appointed Fabrizio Campelli, a veteran Deutsche Bank executive who honed his skills at consulting firm McKinsey & Co., in charge of restructuring. Mr. Sewing eventually became head of corporate and investment banking, a division that had historically housed some of Deutsche Bank’s biggest risk-takers.
The salt-and-pepper-haired Campelli arrived at the meeting with a detailed spreadsheet of 70 initiatives listed next to the names of those responsible and updates. The idea was to reduce unnecessary costs and risks that consume excess capital, and to promote business with stable returns.
The safer approach was demonstrated after Deutsche Bank dodged two bullets that hit its Wall Street rivals. This avoided losses due to the implosion of Archegos Capital Management’s family office. Additionally, when credit markets froze in 2022, large-scale loans related to M&A transactions were not stalled.
Inside the corporate and investment bank, which serves large corporations and investors, the majority of its revenue now comes from more stable corporate client activity, the bank said. But executives admit more work is needed to convince investors of the changed business structure.
“Corporate banking has become the core of the bank,” Campelli said.
Executives cite examples of Deutsche Bank supporting back-office operations rather than funding risky bets. The company provided clients with services such as automated tax reporting and currency conversion for companies with global businesses. We have brought in a dedicated service team and relationship manager to help businesses with their day-to-day operations.
Deutsche Bank makes large business loans to private equity firms for acquisition purposes, but sees potential in providing these companies with low-risk services that don’t require banks to hold large amounts of capital. There is.
One example: Deutsche Bank began providing money management services to the U.S. Blackstone Investment Fund in 2019 and has since expanded its services to multiple Blackstone funds. “They’re really ramping up their efforts in this area,” said Frank Barbara, Blackstone’s global finance operations manager.
Indeed, this bank once stumbled under the saw. It has failed to meet its cost-cutting targets and is still receiving warnings from regulators for insufficient anti-money laundering measures. The company’s asset management division was embroiled in a greenwashing scandal.
In Spain, regulators and customers have accused Deutsche Bank of selling risky foreign exchange derivatives to small and medium-sized companies that have suffered heavy losses. The bank said it was reviewing and strengthening related processes and controls.
“If we made a mistake, I would be the first to say that this was a mistake,” Sewing said, adding that when the German Postbank sector’s private customers merged with the bank last September, He cited how he immediately apologized when he was locked out of his account. computer system.
Analysts and investors say the bank needs to grow shareholder returns over the long term for investors to buy into the sewing revival story.
“This is essentially a ‘show me’ story. You have to keep offering it over and over again to convince investors,” said Stuart Graham, an analyst at Autonomous.
Matthew Fine, a portfolio manager at New York-based Third Avenue Management, began investing in Deutsche Bank after Mr. Sewing took over. It is currently one of his top 10 holdings. He sees Sewing as a fundamental break from banks’ long, tarnished past.
“We believe he is one of the most undervalued executives in global financial companies,” Fine said.
Email Patricia Kowsmann at [email protected].