From rumour, to leak, to background briefing, to common knowledge, to ‘absolute commitment’, to emergency weekend meetings; and from there to a summary firing and replacement – all in less than two weeks.
Cryan’s gone as CEO, Sewing is in, and a whole bunch of new problems are just starting for my old shop Deutsche Bank.
I suppose I should wish Herr Sewing well. It is true that he starts with some advantages.
For one, he is German. I’m told that counts for a lot. His decades of loyal and unstinting service to the bank also mean that he is very familiar with some bits of it (mainly just the support functions of audit and risk, but still). No surprise then that one major investor – speaking anonymously to Reuters – was moved to describe him gushingly as an ‘OK candidate’.
Anyhow, despite this high level of enthusiasm, I can’t help thinking that Sewing wasn’t first choice. Why? Well, mainly because of all the external candidates from Goldman, UBS, Standard Chartered etc. who were lined up and whose short-lived wooing was leaked to the press. They’ve all clearly and publicly declined the offer.
It’s like a football club firing the manager when it’s 8 points adrift at the bottom of the table and then promoting young ‘Mike’ – the uninspiring but loyal assistant – because Pep and Jose and Jupp and Jurgen won’t answer the phone. 
One instant problem on Sewing’s plate is that Herr Schenck, the Co-CEO of the investment bank is reportedly leaving and Garth Ritchie (the remaining co-head and in my view a good man) will take over as sole head. That will mean a whirl of reshuffling, as will the recent departure of senior ex-GS whizz Sam Wisnia from the I-bank.
But reshuffling might be the least of the investment bank’s worries. ‘Tough decisions’ will need to be made, as Herr Sewing has stated cheerily in his initial message to the troops. The ground is clearly being prepared for a brutal cull of the unit.
Not that anyone inside or out will be particularly shocked. A project called ‘Colombo’ has been set up to ‘review’ the division’s structure and future. How do I know? Erm … it’s all over the papers.
(As an aside to DB, if you’re choosing a modish and neutral name to hide the reality of what a project is aiming to do it may be best not to brief journalists about its true nature. Just call it ‘Death Star’ and be done with it).
The clunking obviousness of this change in strategy (change from the old strategy which was signed off a couple of years ago by both boards, let’s not forget) will cause some severe near term and medium term problems, mainly as a result of the uncertainty.
First off, staffing. For some time to come it’s going to be really difficult for DB to recruit and retain staff. If you were thinking of joining the bank before today would you still be now? Probably not. And if you were already working at DB and were considering leaving, would you go now while you could get paid on the offer rather than hitting a plumetting bid later? Yeah, I think so too.
Then there is the effect on customers. Customers (in my experience) like to think that they will be getting a service for the foreseeable future. If they don’t know that they will, they’ll just deal elsewhere. This will even affect businesses that ultimately might survive the cull. Let’s put it this way, if I was at one of Deutsche’s rivals right now I would be gleefully advising my customers not to take any chances on DB and, instead, deal with me.
Last, when businesses are shuttered, it’s the case that revenues disappear instantly while the effect on costs is counterintuitive. Redundancies lose you a fortune quickly, but many of the recurring costs embedded in running a business disappear annoyingly slowly.
As I once wrote – speaking from bitter personal experience:
Closing down a business is a complex matter. Books of deals need to be sold off but, if they cannot be (maybe because of their peculiar legal structure or some other wrinkle), they must be held and run to maturity. For long-dated derivative deals this means that the computer systems and support staff needed to administer them must be kept in place, sometimes for years. As an operations manager joked to me about one complex set of [commodities] deals that he would need to look after (echoing the words of Slade’s Noddy Holder about his band’s perennial Christmas number one): “To you it’s just a derivatives book; to me it’s a pension plan”.
Core businesses, … especially those that have existed for some time, become almost inextricably linked into the rest of the bank. You cannot just turn off their supporting computer infrastructure because other remaining businesses rely on it, often in surprisingly subtle ways. Computer systems, ironically enough, regularly seem to put up more of a fight for their career survival than the people who use them. As a result, costs are hard to kill in banks.
All told, it will be very difficult to turn the investment bank around speedily by cutting lumps out of it. Costs will rise and then refuse to fall. Revenues will be under pressure.
Calling impatient investors! Prepare yourselves for disappointment.
And it isn’t just a short-term problem. Once the investment bank is dismantled it will be next-to-impossible to build it again. Who would accept assurances that ‘this time we’re really committed’ if they were being approached by DB for their exciting ‘investment bank rebuild’ in five years’ time? No one who is any good or who isn’t being paid a fortune in danger money, that’s for sure.
Thus, slowly, inexorably, Deutsche will retreat to its pre-1989 core business of retail, commercial and private wealth banking – activities which, as I have described before, had such severe structural impediments back in the 1990s that investment banking was seen as an escape route. Those impediments have not gone.
I think it will be a long road to recovery and when recovery comes the patient will look very different from the way it does today.
But never mind, investors!
If this strategy fails I’m sure Herr Achleitner will soon be willing to try a punt on his fifth CEO who will come, no doubt, armed with yet another brand new plan.
Make a decent investment: you can buy the new edition of Kevin Rodgers’ book ‘Why Aren’t They Shouting?’ at Amazon
 ‘More like the groundsman’ said an unimpressed DB friend of mine at this suggestion. That’s funny but a little harsh.
April 9, 2018 at 2:28 pm
As Lex has titled it: ‘Revenge of the Nerds!’
April 9, 2018 at 2:37 pm
It’ll be nasty….
April 10, 2018 at 8:42 am
This is easier than it sounds absent the pervasive mismarking.
If GM marked its book to sell ( mark t market), shutting down would be easy.
Sell the books, rip the bandaid off, and merge with Commerzbank.
April 10, 2018 at 8:52 am
Well, going back to being a domestic commercial bank is at least a coherent strategy but I can assure you that ‘easy’ isn’t the word I’d use about closing GM even if reserves (bid/offer, unobservability, CVA, etc) were sufficient to cover mid to offer on all the books. It would be a massive, multiyear ballsache. As DB will probably soon find.
April 10, 2018 at 11:16 am
They just made the same mistake once again. What they should have done was to hire from outside the bank, and preferably a female this time. If they couldn’t find someone, try harder, offer more generously priced stock options – certainly there is a strong CEO candidate out there for the right price. And the co-deputy CEOs once again – how stupid/laughable…why not admit right upfront that you don’t have full faith in the CEO? The bank is shrinking, not growing – less cooks in the kitchen, not more.
Now, we get to wait a couple months to see Sewing’s 5-year plan and the beginning of another failed era.
Same old, same old.
April 10, 2018 at 11:23 am
When I wrote a piece two weeks ago reasoning that getting rid of Cryan would be a mistake, I had people argue with me that a change would be good because “Cryan wasn’t ‘leading’ enough”. Now DB have Sewing – basically a career staff guy – because no-one else wanted it. Better? I don’t think so. Maybe they should have hired Alan Pardew.
April 10, 2018 at 11:37 pm
Great article Kevin. Could not agree more on the ultimate shape of the future DB. Very sad and makes me wish for the good old days!
April 12, 2018 at 3:00 pm
Interesting read, and certainly full of valuable views that are justifiable in light of DBs status quo, how it got there and the lack of a determined execution of a particular direction. The co-existence of the German culture/roots/history and the investment-banking culture has and is a challenge to the institute, preventing/delaying the decisions that are needed in combination with a thorough execution. However, I am somewhat less of a skeptic towards Christian’s qualification and how such would lend to the task(s) at hand. Which brings me to the next point. What is really the task at hand in the near/mid/long-term future?
Christians roots (DB Apprenticeship, Risk Management, Audit, German) might be of greater value to the public eye in Germany (chancellery, press, BaFin/Buba), but maybe that’s what is needed?!
Given the perceived mistrust of investors, indicated by the stock price, and a vast gap between book and market value, shouldn’t this trigger some investors to come in, cut it in pieces and sell the individual parts at a huge profit whilst relieving the continental European segment to the Germans (who then can bring it together with a French bank, or else)? In that sense, some of the drivers of uncertainty that DB is faced with (legal issues, brain-drain, fractured and anachronistic systems, leadership) seem to be rather a protective shield, allowing them to prolong its current status.
But what if these factors are being (largely) addressed – will they be able to take care of things by themselves or will the market step in to make such decisions for them?
A national German icon like DB, which is an essential partner to its’ export industry, will not go down just like that. The economic and political interests are much to significant. Nevertheless, the question might be asked, how a bank would need to look like (types of services, network, know-how, etc) to fulfill such a role as a viable competitor to Commercebank?
Altogether, I totally agree with you that DB’s nature will be subject to a much more radical change than what is currently dominating the headlines.
April 12, 2018 at 3:07 pm
I don’t think DB will ‘go down’. I just think it will revert to being a commercial bank, with maybe a vestigial, specialised ‘German-centric’ stub I-bank. Nothing wrong with that but it will be a really painful ride to get there. If I worked at UBS or Barclays or CS (not to mention the US banks) i’d be beside myself with glee at the turn of events.
May 5, 2018 at 6:34 am
Enjoy the reading a lot.
Wonder if can connect via email fir some further discussion.
May 5, 2018 at 6:40 am