W.Hen in April The 2018 Christian seamstress took over as chief executive of Deutsche Bank. The bank, one of the largest in Europe in terms of assets, has had four chief executives in six years, and its survival was at stake. It was unable to make enough profit to create something similar to a decent return for investors and often seemed to fall into the trap of costly lawsuits. Banks have been occupied, even wounded.
Mr Sewing, impressively, is still in his job — and his contract was extended last year to 2026. On January 27, he presented the bank’s annual results for 2021 at Deutsche Welle’s headquarters in Frankfurt. They have confirmed that the lender has finally stabilized. Mr Savings announced a pre-tax profit of 21 3.4bn ($ 3.8bn) and a net profit of € 2.5bn for 2021. In the last three months of the year, it gained 315m euros a year, a 67% increase, beating analysts’ expectations. Overall throughout 2021 “we have delivered our best results in ten years”, Mr. Sewing said. Shareholders seem to agree. Since the record low in March 2020, Deutsche’s share price has almost doubled.
What has Deutsche turned into a corner? One year after he took office, Mr Sewing announced his ambitious plan to save the 152-year-old bank that once funded Germany’s industrialization. This will be the bank’s “most fundamental transformation” in decades, he promised in July 2019. He said he would shrink its investment bank and stop trading in shares altogether. And he announced that he would cut spending by € 5.8bn a year, a quarter of the total, to € 17bn in 2022. Eighteen thousand jobs, one-fifth of the salary, will go.
Mr. Sewey’s restructured bank consists of four pillars. The two largest in terms of revenue are its retail branch and its investment bank. Following the merger of Postbank, a German postal bank, in 2018, Deutsche remained the largest retail lender in the country. The investment bank, which is still substantial, brought in more than a third of its revenue last year, part of it from fixed-income securities, currency and commodity trading.
The other two pillars are a corporate bank that provides services such as cash management and trade financing mainly to European businesses and DWSGermany’s largest asset manager, mostly owned by Deutsche Welle, and according to analysts, is the most consistently profitable business.
“Mr Sewey has done a good job in a difficult environment,” said Stuart Graham, an autonomous research analyst who argued in a 2018 report that Deutsche Bank’s business model had collapsed beyond repair. The time when Deutsche often had problems with the law seems to have passed Credit-rating agencies such as Fitch and S.AndP Deutsche has raised many ratings over the past year, arguing that its strong business model, good asset quality, decent funding and liquidity position, as well as its adequate capitalization, have boosted confidence.
Still, no one thinks Deutsche is still out of the woods Last year’s rise in fixed-income trading was unexpected and may not be sustainable, says John Peace of Credit Suisse, a bank. Deutsche will have to start raising capital to prepare for Basel 4, a new set of regulations that will take effect in 2025. Moreover, its cost is still much higher than that of its peers. Mr. Sewey must cut more if he is to achieve his ambitious goals.
The big question is whether Mr Sillai will reach the target of a real equity return of 8% and start giving shareholders a bounty of up to bn 5bn in dividends this year. The bank made no payments for 2019 and 2020, and only a small one for last year.
As a result, Deutsche Welle did not convince shareholders that it was making enough profits to provide adequate returns. So the bank is still transacting less than half the value of its books. And analysts doubt that Mr. Sewing’s goal will be achieved. Joachim Schmidt of Metzler, a German bank, has forecast a 4.8% return on equity this year; Analysts predict a consensus of 5.5%. Deutsche may have come a long way since hitting the rock-bottom Still, Mr. Sewey still can’t look back with satisfaction. 3
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