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Deutsche Bank Bets on Ex-Goldman Partner in Strategy Revamp

Deutsche Bank Bets on Ex-Goldman Partner in Strategy Revamp

By Steven Arons and Jan-Henrik Foerster

Marcus Schenck had been itching to work on deals -- so much so that the chief financial officer of Deutsche Bank AG would spend one day a week with clients, a habit that didn’t always sit well with colleagues, according to a person familiar with his thinking.

Now the former Goldman Sachs Group Inc. partner has a chance to show he can bring in the revenue that Germany’s biggest lender so urgently needs.

Schenck, 51, and fellow German Christian Sewing, 46, were installed Sunday as deputies to Chief Executive Officer John Cryan with the task of restoring growth and reviving a business model the bank had all but abandoned less than two years ago. The new strategy, unveiled along with an $8.5 billion share sale, reverses a plan by the 56-year-old CEO to split the bank’s trading unit from transaction banking and advisory. And it calls for the reintegration of the consumer-banking subsidiary Postbank, which Deutsche Bank previously sought to sell.

“It looks like they are warming up for Cryan’s succession,” said Philipp Haessler, an analyst at Equinet Bank AG in Frankfurt who recommends buying Deutsche Bank shares. “We’ll see over the next two to three years who will perform better and thus likely clinch the top job.”

Schenck will be co-head of the reintegrated investment bank, the biggest unit by revenue, but one that’s been cut back under Cryan and has lost market share amid concern about Deutsche Bank’s capital strength. Sewing will help run a new private and commercial banking unit that will include Postbank, as well as corporate clients and wealth management.

Passion for Soccer

“I got the impression that Deutsche Bank wants to become more German,” said Boris Boehm, a fund manager at Aramea, which owns shares in the lender. “The two are relatively young, too, and they’re meant to represent the new character of the bank.” Boehm said Aramea will probably participate in the capital increase because of the discount to the current share price.

Deutsche Bank fell 1.9 percent to 17.30 euros at 12:27 p.m. in Frankfurt trading, extending Monday’s 7.9 percent decline. The capital increase was underwritten at 11.65 euros a share, a 39 percent discount to Friday’s closing price of 19.14 euros, by a consortium of banks.

Schenck and Sewing are known within the bank to be friends, and they share a passion for soccer and German Bundesliga club Bayern Munich. Yet the challenges they face are different.

Schenck, who joined Deutsche Bank two years ago, is expected to use his relationships with CEOs and CFOs to attract new business from corporations as the firm pivots away from hedge funds and other financial firms, according to another person briefed on the matter. The bank is pledging almost two-thirds of the unit’s balance sheet for corporations. In 2011, institutional clients accounted for about twice as much revenue as corporate customers.

Schenck’s Network

A former CFO at the German utility E.ON, Schenck knows leaders of some of the biggest German companies and meets with them regularly. And like Deutsche Bank Chairman Paul Achleitner, Schenck was once a dealmaker at Goldman Sachs, where he oversaw investment banking services for Europe, the Middle East and Africa. People who know him describe him as highly ambitious but affable, and someone who enjoys putting his stamp on a business.

He will run the investment bank with Garth Ritchie, a trading executive who came up through the equities business. The two are tasked with striking a balance between boosting revenue and cutting 700 million euros ($740 million) of costs by 2018. They’ll also have to work to retain talent after job losses and cutbacks in compensation sapped morale.

As part of his initial overhaul, announced in October 2015, Cryan had separated the markets business from the advisory and underwriting units, and shrunk the trading business. A number of his predecessor Anshu Jain’s top deputies -- including Colin Fan and Michele Faissola -- departed as part of the shakeup.

Deutsche Bank’s share of the bond-trading market fell to about 12 percent last year, the lowest since 2009, according to data from Bloomberg Intelligence. The lender was the ninth-ranked adviser on announced mergers and acquisitions in 2016, according to data compiled by Bloomberg.

Tall Task

Keeping the two units together was “probably the right answer in the first place,” Cryan said Sunday on a conference call with journalists. “We just didn’t know it at the time.”

Sewing’s task is no less tall. A lifelong Deutsche Bank veteran, he is expected to lift morale inside the bank as employees are going through yet another disruptive overhaul and cost-cutting program, according to one of the people. The bank needed an executive who understood the German corporate culture and who could strike the right tone with employees, said this person.

Deutsche Bank shelled out more than 6 billion euros to buy Postbank in 2010, then wound up spending another 1 billion euros to mesh and upgrade computer systems. The job was still underway when Deutsche Bank said it would sell the unit, which it had acquired under former CEO Josef Ackermann to supplement volatile investment banking revenue with more stable income from retail banking.

‘Poor Cousin’

“With Postbank they bought the worst of the worst in German retail banking,” said Hans Ulrich Jost, a fund manager at GAM Holding AG, which owns Deutsche Bank shares and plans to participate in the rights offering. “They never really cleaned it up and this is what they are going to do now. I think it’s reasonable. They’re finally taking care of the poor cousin."

The business has been battered by negative rates and low client activity, and Deutsche Bank wasn’t able to fully tap synergies with the unit. Cryan said on a call with analysts Monday he was confident to get the regulatory approval needed to tap those synergies this time around, partly because the bank’s internal controls had improved. The bank also plans targeted investments in the wealth management business, he said.

Sewing, a board member who started at Deutsche Bank as an apprentice in 1989, will lead the largest private and commercial bank in Germany, after serving as deputy chief risk officer from 2012 to 2013 and head of group audit from 2013 until 2015. He will be supported by the CEO of Postbank, Frank Strauss, a former hockey professional who may also get a seat at the management board.

Cryan said on Monday that the bank has plenty of people on the board who could lead in due time, and that installing two deputies at his request was about burden-sharing, not succession -- at least not “formally.”

“I do have a fixed contract, that’s normal in Germany, and it expires in 2020,” he said at a meeting with analysts. “Let’s wait until then to see what I do.”

https://www.bloomberg.com/news/articles/2017-03-06/deutsche-bank-bets-on-ex-goldman-partner-in-strategy-reversal

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