March 20, 2019 / 4:04 PM / 6 months ago

Head down, eyes on the prize: Deutsche's realist CEO

FRANKFURT, March 20 (Reuters) - Christian Sewing, the chief executive of Deutsche Bank, doesn’t do grand visions.

For much of his 30 year career as a banker, all but two of them at Deutsche, he has been heavily involved in risk control, auditing, and cost-cutting.

As he holds merger talks with smaller rival Commerzbank – an assignment foisted on him by German government officials – opinion is split on whether this ‘head down’ attitude will serve Deutsche Bank well as its future course hangs in the balance.

Since taking over as chief executive of Germany’s largest bank last year, Sewing, pronounced “Zay-ving”, has largely implemented the same strategy of simplification as his predecessor, John Cryan, albeit with an even greater focus on squeezing expenses.

The zeal for parsimony, from cutting business travel to axing the office fruit bowl, has helped the bank regain some credibility by making its first net profit in four years.

But some colleagues are frustrated at Sewing’s fixation on costs, which had, until recently, overshadowed discussions on strategy at Tuesday meetings of the bank’s management board, according to two people with direct knowledge of the gatherings.

And some investors would prefer to see more radical measures to boost shareholder return, such as the closure of the U.S. investment bank, and greater investment in other divisions, such as transaction banking.

“He’s a COO, not a CEO,” said one of the people familiar with the meetings, referring to the subordinate role of chief operating officer. “The bank doesn’t know what it wants to be.” The people spoke on condition of anonymity so they could talk freely about private meetings.

Neither Deutsche Bank nor Sewing would comment on the record for this story, but Mark Hantho, chairman of global investment banking at Deutsche, said Sewing has been “an absolute breath of fresh air with a maniacal focus on execution”.

Since returning the bank to profit earlier this year, Sewing has changed how he conducts the management board meetings.

He has created a so-called growth council, comprised of the board and a handful of senior executives, which meets once a month to identify ways to allocate money and people to drive revenues, according to three people with knowledge of the matter.

REALISM PLEASE

After a string of former investment banker chief executives who doubled down on risk in pursuit of profit, some investors say Sewing is the right man for Deutsche now.

“In Deutsche Bank’s current situation, what is needed is not so much visions as hard realism,” said Klaus Nieding, vice president of shareholder lobby group DSW and a sceptic of a tie-up with Commerzbank. “I’m delighted that we won’t be running after any more visions, which has cost us a lot of money in the past.”

Taking over Commerzbank would give Deutsche around a fifth of Germany’s retail banking market, boost the share of revenue it derives from less volatile commercial and retail lending, and lower its funding costs.

But a tie-up would also take years to integrate, face stiff opposition from trade unions, which fear tens of thousands of job cuts, and does not address low returns from Deutsche’s investment bank.

It is not clear if Sewing would lead a combined bank. A decision on whether to go ahead with a deal is expected within weeks, two sources familiar with the matter said.

Deutsche Bank has struggled to recover since the financial crisis killed off the sort of excessive risk-taking that parachuted the former sleepy lender into the top ranks of Wall Street trading houses.

With trading no longer as lucrative as it once was and stiff competition in its domestic banking market, Deutsche faces major structural problems. Despite Sewing’s efforts, Deutsche’s market capitalisation has fallen by over $8 billion since his appointment last April.

The bank has also been implicated in a string of financial scandals in recent years and its dealings with U.S. President Donald Trump are being scrutinised by politicians and the New York Attorney General.

Concerned about the health of Deutsche and smaller rival Commerzbank, in which the state holds a 15 percent stake after a crisis-era bailout, the government pushed for months for merger talks, according to officials familiar with the discussions.

Berlin wants a national banking champion and was concerned that Commerzbank, which lends mainly to medium-sized companies that are the backbone of the German economy, would become a takeover target for a foreign bank.

Sewing wanted to wait at least a year to continue his restructuring before taking on the task of merging two companies with combined assets of 1.8 trillion euros, according to two people with knowledge of his thinking. But he has warmed to a deal, according to two other people familiar with the matter.

“You may recall that last September I said that, first and foremost, we intend to do our homework,” he wrote in a memo to employees on Sunday, confirming that talks were taking place. “At the same time, however, we have to assess opportunities as they arise.”

EXECUTION DYNAMIC

Sewing was a 19 year-old apprentice at Deutsche Bank when it made its first serious foray into investment banking with the purchase of Morgan Grenfell, a British merchant bank, in 1989.

He went on to work in risk management, auditing and retail banking, taking up roles in Germany, Britain, Canada and Asia during his career. In 2015, he was responsible for Deutsche’s private and commercial bank, and earned a reputation as a cost-cutter, axing thousands of jobs and hundreds of branches.

Sewing was appointed CEO last year when tensions between Cryan and Chairman Paul Achleitner spilled into the open and the board was under pressure to end speculation about the top job.

The promotion appeared to surprise even Sewing, who according to one person, sheepishly told senior managers in Frankfurt days after his promotion about his need for a “new blue suit”.

Achleitner promised a “new execution dynamic” under Sewing but the chief executive has rankled some board members with what they see as short-sighted decisions to freeze spending or halt hiring to get costs down, according to one person familiar with the discussions.

A decision taken last summer to curb hiring in the bank’s compliance division led to the resignation of Philippe Vollot, the head of the bank’s anti-money laundering unit, according to the person. That departure was particularly awkward for a bank that has had multiple money laundering lapses and was being closely scrutinised by regulators because of it.

Vollot declined to comment. He is now the chief compliance officer for Danske Bank.

Described by colleagues as unassuming, Sewing is nonetheless steely. When investor criticism of his decision to stick with the bank’s equities division became public last month, he had the bank issue a terse statement in response.

“‎We have adjusted our footprint in our Corporate & Investment Bank and in the U.S. already in 2018,” the statement read.

Asked about his management style, one confidant said: “He’s a tennis player. And quite a good one. He keeps hitting the ball back until he gets what he wants. That’s probably the best analogy to describe him.” (Additional reporting by Hans Seidenstuecker and John O’Donnell; Editing by Carmel Crimmins)

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