Deutsche Bank AG’s management upheaval might be the final blow to the embattled lender’s ambitions to go head-to-head with Goldman Sachs Group Inc in international investment banking, and that is just fine for many in Germany.
With veteran Christian Sewing appointed chief executive officer as the emergency replacement for out-of-favor John Cryan, businesses serving international clients and trading an array of exotic securities look set to be scaled back.
Focusing on lending to German firms at home and abroad would be welcome after three turnaround plans in less than three years.
“Germany doesn’t need an investment bank in the image of Goldman Sachs,” said Ingrid Arndt-Brauer, a Social Democrat lawmaker who chairs the finance committee in the German parliament. “German companies and consumers need a bank that’s focused on the core business of lending that secures the German economy and partners with companies internationally.”
Dialing back its ambitions in global investment banking would be an about-face for Germany’s biggest lender after it sought support just three years ago to become more like Goldman Sachs.
Crushing competition at home and repeated blows to its reputation in the US ensured that it never realized those goals.
Cryan failed to inspire staff and investors in his ability to turn around the bank, leading chairman Paul Achleitner to sound out potential replacements before settling on Sewing to bring calm.
“Sewing’s appointment is in my view a signal that investment banking will no longer be dominant,” said Hans Michelbach, a lawmaker from Christian Social Union, the Bavarian sister party of German Chancellor Angela Merkel’s Christian Democratic Union.
He expects Deutsche Bank to focus on retail banking and financing for the German economy, especially working with small and medium-sized companies.
The bank has struggled to recover from the financial crisis that exploded a decade ago and recent restructuring efforts have been slow to bear fruit.
Its stock has fallen by more than half during Cryan’s tenure and trades at about a third of the value of its assets, compared with JPMorgan Chase & Co’s multiple of more than 1.5 times.
While Deutsche Bank’s US and UK operations are most at risk in a tighter focus on Germany, the country’s export strength means an international footprint is valuable.
“Investment banking is important, especially for the German economy,” Sewing told German broadcaster ZDF on Monday. “We want to accompany German companies abroad and we need capital markets products to do so. We’re strong there and that’s why we want to remain a leading European investment bank.”
Deutsche Bank was set up in 1870 to promote trade for Germany, opening offices in London, China and Japan within its first years of existence. Catering to retail as well as corporate customers became a key part of Deutsche Bank’s German identity.
However, as it expanded in recent years into more far-flung and exotic markets and services, it racked up more than US$17 billion in fines and damages for misconduct.
“Germany needs a bank that will continue to be one of the most important players globally,” said Andreas Meyer, who manages about 1.4 billion euros (US$1.73 billion) at Aramea Asset Management in Hamburg, Germany, including holdings of Deutsche Bank subordinated bonds. “I don’t think that pulling out of investment banking is on the cards for Deutsche Bank, given its culture and direction.”
Sewing’s background in retail banking suggests the lender might intensify its focus on Germany.
As Deutsche Bank’s international business struggled, domestic operations gained importance, accounting for 37 percent of group revenue last year, compared with 27 percent in 2007.
While the company has launched a review of its investment banking division, dubbed Project Colombo, it is merging its two domestic retail units, abandoning previous plans to sell the Postbank subsidiary.
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