Some of Deutsche Bank's largest shareholders are demanding that the chief executive of his US investment bank bring in more and more losses as they can no longer use the patience with the poor performance of the lender and the falling stock price.
Four of the top ten largest shareholders of the largest German bank have told the Financial Times that they want Christian Sewing to take more determined steps to reverse the staggering divide, especially in the US.
The pressure on Mr. Sewing has risen as Deutsche Bank's share price fell by a third in the ten months since it was acquired. One investor said he had recently told the bank he wanted to downsize the US investment bank by the summer.
At least four members of Deutsche Bank's supervisory board share the view that further cuts to the US investment bank are needed, people familiar with their thinking told FT.
There are also doubts about the position of Garth Ritchie, head of the investment bank of Deutsche Bank. "Christian will have to change something in the next few months," said a large investor, pointing out a potential management fault.
Last September, the Supervisory Board unanimously extended Mr. Ritchie's contract by five years. However, the FT reported last November that members of the board were pushing for its dismissal, and since then concerns have grown that it's the right person for the job.
Turnover in the German investment bank has fallen by a third in the last three years. Analysts expect a further decline this year. According to one person who was briefed on the matter, their US investment bank has made losses in nine of the last ten years. Last year it was put on a federal list of problem banks.
After his appointment last April, Mr. Sewing made some cuts to the investment bank, especially in stocks and prime brokerage services for hedge funds. In total, he has reduced 7 percent of his staff in front office investment banking and is ready to cut bonuses.
Cerberus, who owns 3 percent of Deutsche Bank, has appointed JPMorgan's former manager, Matt Zames, to look at how to better leverage the balance sheet and capital of the German lender.
Mr. Sewing appears to be resisting further cuts and recently said he wants to run the investment bank on a "broad base".
"We have already adjusted our presence in our corporate and investment bank and in the US in 2018, including reducing our leverage exposure by more than EUR 100 billion," said a spokesman for Deutsche Bank on Wednesday, adding that the lender "have completed our upcoming adjustments." Schedule "and now had a good basis for growth.
Another person familiar with the bank's strategy said that the top executives were fully committed to the US, a market she considered Germany's most important market, adding that the major shareholders are in direct Talks with top executives would not have required further cuts.
However, major investors told the Financial Times that they see tougher action, including a significant decline in the Bank's cash equities and corporate finance businesses, structured products and an underperformance of portions of their bond, currency and commodity trading units. A top shareholder wants a strategic move away from the US towards Europe and Asia.
JPMorgan Chase analysts estimated last year that Deutsche Bank's US bank lost 25 cents for every $ 1 of dollars it makes. This threatens to worsen, as regulatory capital requirements are tightened and financing costs increase.
Two top 10 shareholders, who previously supported the maintenance of a major investment bank, said they now support cuts.
One of them said it might even be desirable to push the US bank below the $ 50 billion asset threshold above which it is more tightly regulated as an "intermediate holding". The US broker-dealer business and Deutsche Bank's commercial bank currently have total assets of $ 132 billion.
A third major shareholder said that all divisions that earn less than their cost of capital should be addressed and, in some cases, reduced.
Another major shareholder told the Financial Times that Deutsche Bank will need to have a "Plan B" cutback plan even if markets are deteriorating, even if action is not needed immediately. However, this person also emphasized that the managers had made significant progress in restructuring.
Mr. Sewing told analysts at the beginning of February that the bank would "try to offset any weaknesses by further cost reductions" should revenue growth be weaker than expected.
In the fourth quarter of 2018, the investment bank's return on tangible equity was minus 2.2 per cent – far from its medium-term target of 10 per cent.