Christian Sewing is to give up direct oversight of Deutsche Bank's all-important investment bank, caving in to concerns from regulators over the Deutsche Bank chief executive's excessive workload and potential conflicts of interest, according to people familiar with the matter.
Germany’s largest lender will announce the change before its annual shareholder meeting on May 27th, part of a wider reshuffle of its management board which is poised to be unveiled over the coming two months, the sources said.
Sewing was named chief executive of Deutsche Bank in April 2018. He has been directly in charge of its investment bank since July 2019, when the lender embarked on its most radical restructuring in decades and drastically shrank its then-struggling investment bank.
Regulators
Back then, the European Central Bank (ECB) and Germany's financial regulator BaFin only accepted this oversight set-up as a temporary solution and pressed Mr Sewing to give up the investment bank role within one or two years, the Financial Times reported in November 2019.
Next month, Mr Sewing is going to take up an additional role as new president of the Association of German Banks, a trade body, which will add another time commitment to his responsibilities.
Apart from their concerns that Mr Sewing “is spread too thin”, regulators have also felt uneasy about a potential conflict of interest created by his dual position at Deutsche. As chief executive, his role is to promote prudent risk-taking, while the top investment banker is, by definition, a risk creator.
Large shareholders in Deutsche Bank have in the past also stressed that the lender needed more investment banking expertise on its executive board.
Sewing’s coming withdrawal from the investment bank was first reported by German daily Handelsblatt. Deutsche Bank, the ECB and BaFin declined to comment.
Under Mr Sewing’s oversight, performance at the shrunken investment bank has exceeded both analysts’ expectations and the bank’s own projections two years ago. Buoyed by a global surge in bond and currency trading, it generated 39 per cent of the bank’s total revenue in 2020, compared with just 30 per cent in 2018.
The division’s pre-tax profit of €3.2 billion last year was three times the bank’s overall level. At the same time, the costs allocated to the investment bank have fallen by almost one-fifth over the past two years.
Flip side
A flip side of the investment bank’s strong performance is that Mr Sewing has so far not delivered on his pledge to refocus Deutsche Bank on more stable and less risky businesses such as commercial and retail banking, and asset management.
Deutsche Bank’s shares are up more than 50 per cent since the lender announced its restructuring plans in mid-2019 but still trade some 9 per cent below the level in April 2018, when Mr Sewing was appointed chief executive.
The investment bank's day-to-day operations are jointly overseen by Ram Nayak, who is in charge of the fixed income and currency sales and trading division, and Mark Fedorcik, who runs the much smaller origination and advisory business. Both are based in New York.
This year, Deutsche Bank's investment bank has been performing "better than well" and revenue by mid-March was 20 per cent higher than a year ago, executive board member Fabrizio Campelli said earlier this month at a banking conference. The lender anticipates overall investment banking revenues to be lower this year as the trading frenzy is expected to normalise.
A replacement for Mr Sewing as head of the investment bank has not yet been named. Campelli, who is Deutsche Bank’s chief transformation officer, is internally seen as one of several potential candidates for the role, according to people familiar with the matter. A senior investment banker could also be poached from a rival, the people added.
– Copyright The Financial Times Limited 2021
