Half a year after announcing that as part of its sweeping corporate overhaul, one which would see at least 10,000 employees laid off, or roughly 1 in ever 10, Deutsche Bank has found itself with slumping revenues and not nearly enough overhead expense reductions to result in a boost to profits, which is why the biggest German lender is now weighing another round of mass layoffs, this time focusing on "high-level" employees, and which could include the departure of top executives central to its relationships with key regulators in the U.S. and Europe.
While the discussions about the potential shake-up aren’t final and could still be changed, the WSJ sources say they are a sign of continuing unrest at Germany’s biggest bank, which in April terminated its chief executive officer and promoted a longtime, retail-bank focused executive to succeed him.
According to the WSJ report, one of the people whose departure is under discussion is Sylvie Matherat, the bank’s chief regulatory officer and a member of the management board. Another is the bank’s CEO of the Americas region, Tom Patrick.
Matherat has told associates she might need to prepare to leave the bank, and has expressed unhappiness with what she described to some associates as constraints to improving financial-crime controls and mending Deutsche Bank’s relationships with regulators, some of the people say.
Understandably, Matherat’s performance has come under close scrutiny by new CEO Christian Sewing following a seemingly endless sequence of legal settlements, regulatory rebukes and countless missteps in combating the bank's perpetual engine running on financial crimes. And while one of the story sources said a focus is whether she has effectively improved processes for detecting and preventing money laundering and other banking violations by customers through a restructured division she supervises, the reality is that DB's criminal problems started long before her tenure and expecting the bank's deeply ingrained "ethical" problems to be fixed in one generation of management is simply ridiculous.
Matherat has been with the bank for only 3 years, joining the management board in November 2015 after starting at the bank in 2014 as global head of government and regulatory affairs. She previously oversaw financial-stability and regulatory matters at France’s central bank.
Since then DB's legal troubles have multiplied, and include working its way out of “troubled condition” status, a rare censure the Fed applied to the lender’s U.S. operations in early 2017.
Deutsche Bank itself acknowledged in September that it needs to improve processes to prevent money laundering and terrorist financing, saying it is working on those issues. However, suggesting that even more dirty laundry may be on its way to the surface, the bank’s global and U.S. heads of anti-financial crime, who reported to Ms. Matherat, have quit.
As for the possible departure of Americas' head Tom Patrick, a former trader who took the role in 2017 "that includes high-level political and regulatory matters in the U.S.", his black mark is that he has worked closely with regulators like the Fed that have cited repeated deficiencies over several years in Deutsche Bank’s technology, business controls and management.
The Americas CEO job has suffered high turnover. In August 2017, Mr. Patrick became the third person named to the role in less than 18 months, reporting to Mr. Cryan. Mr. Patrick initially also continued to run the bank’s struggling equities business but was replaced in that role in December 2017. Mr. Patrick now reports to Mr. Sewing.
In short, DB's gross ethical shortcomings are cultural and run far deeper than just two individuals, however with the stock price plumbing new all time lows, investors demand a sacrifice. And, with few other options, the top brass is in scapegoating mode, and appears to have found its next two targets.
That said, while DB’s supervisory and management boards have recently discussed names of possible replacements for Patrick, no decisions were made source said, perhaps because nobody wants to take a job from which they will be fired in a few months. The flipside is that Patrick is now effectively out, and has told associates in recent weeks that he might not be at the bank much longer, meaning he will likely quit on his own in the coming days.
Meanwhile, the bigger problem facing Deutsche is that it remains a melting ice cube, with declining revenues and a still gargantuan balance sheet, where residual derivative exposure from the days of the financial crisis remains a huge drain of funding. This is still clearly a concern for the bank, which told the WSJ that it is "strongly capitalized with significant liquidity reserves, and that the U.S. operations have a strong balance sheet."
Judging by the bank's tumbling stock price and its soaring CDS, nobody believes this particular lie any more.