Deutsche Bank CEO Vows To Make "Tough Cutbacks" As Shares Slump To Record Low

Watching Deutsche Bank shares crash to new all-time lows (around €6.35 $7.07) just as the troubled German lender's annual shareholder meeting was getting underway in Frankfurt on Thursday, we could hardly imagine anything more appropriate. Actually, that's not true - there is one thing: The revelation, just hours before the meeting's start, that a 'software glitch' had blocked reporting of suspicious transactions for years.

With DB's brand mired in controversy thanks to Congressional subpoenas that have drawn attention to its lending relationship with the Trump Organization, anything that would appear to support Maxine Waters' claim that DB is "the biggest money laundering bank in the world" is perhaps the last thing shareholders need to see (other than maybe another capital raise).

Following the collapse of merger talks with Commerzbank, Deutsche's frustrated shareholders let it be known that their patience with the bank's perennial underperformance and its cratering share price (the bank's market capitalization is now under €16 billion euros) has run out. Now is the time for CEO Christian Sewing, who was heralded as a reformer when he was elevated to replace John Cryan 14 months ago, to make good on his promise to turn DB around.

DB

Christian Sewing

And though Sewing didn't give as much ground as investors would probably have liked, he did deliver a grudging concession during his speech: It's time to make "tough cutbacks" to DB's investment bank. WSJ described Sewing's statement to shareholders as "his strongest public admission yet that the business needs a dramatic overhaul."

And it's about time, because shareholders have become so frustrated, that one felt it necessary to convey his grievances to the bank's management in verse.

One of the reasons DB investors are so frustrated with Achleitner and Sewing is their unwillingness to even consider making serious cuts to the investment bank. Some have suggested that the bank should give up on trading and advisory, and focus instead on its 'transaction banking' business, which mostly caters to corporations and their cash-management needs. However, Sewing and Achleitner have insisted that investment banking is core to DB's identity, that it can be made profitable, and furthermore, that it's a matter of national pride.

DB

Courtesy of the FT

None of DB's businesses have drawn the ire of investors more than its equity-trading business (particularly its US equities business), which lost more than $800 million last year.

Though his speech was light on details, Sewing promised to strengthen DB's transaction bank, which recently came under new leadership, while promising to make "tough cutbacks" at the investment bank. He added that DB is still open to a merger involving its DWS unit, which is reportedly considering a tie-up with UBS's asset-management business, or some other asset-management business, though nothing has been finalized, Bloomberg reports.

As the merger talks with Commerzbank were unraveling, there were reports that DB was toying with the idea of lumping its money losing businesses and most toxic assets into a 'bad bank', which prompted a litany of jokes, the crux of which was that DB is already a 'bad bank'. 

As for Achleitner, the chairman is facing a shareholder challenge to his leadership, which seeks to force him to step down before the end of his term in 2020. Achleitner conceded that he's "made some mistakes" over the past seven years, but that he still feels he's qualified to lead a turnaround: "Did I make mistakes in the last seven years? Of course I made mistakes. Am I the root of all the problems? Of course I am not. I do not want a monument, but I think Deutsche Bank is very important."

Since the crisis, DB has paid roughly $20 billion in fines - far more than any other G-SIB - for misdeeds ranging from the Russian mirror-trading scandal to rigging FX and interest-rate markets.

Another sign of investors' anxieties: Not only are DB shares back at record lows, but valuation metrics like Price to Tangible Book Value have also slumped to their lowest levels on record.

Those are some expensive mistakes.