Banker of the year 2023: Advantage Sewing – How Deutsche Bank’s chief executive saw strength in a crisis
Christian Sewing has turned Deutsche Bank around. The firm has a resilience now that would have seemed unlikely when he was appointed chief executive five years ago. By his own admission, some of the toughest work is still to be done. But the past year and the most recent banking crisis have provided a striking validation of the strategy he set in place.
It was on the weekend of March 24, 2023 – when the cost of insuring Deutsche Bank bonds against default had rocketed and its crashing share price had shaved more than €1.5 billion from its value – that Christian Sewing knew the bank he led had turned itself around.
Two things told him. One, as chief executive, he had access to data right across the institution that no one on the outside and few on the inside could see. That gave him confidence in his bank, even as the rescue of Credit Suisse by UBS the previous weekend was throwing the sector into turmoil.
And two, perhaps more importantly, the world was saying good things about Deutsche.
Despite the nonsense being repeated on Twitter, analysts were dampening the flames rather than fanning them. Even Stuart Graham and Leona Li at Autonomous, with a reputation inside the bank for not holding back on criticism of it, were telling investors in no uncertain terms that “Deutsche Bank is NOT the next Credit Suisse”.
Ratings agencies were also on board. After the Credit Suisse rescue, Moody’s issued a report arguing that none of the biggest European banks showed the same weaknesses.
Less publicly, some of the bank’s most important clients, in talks with Deutsche’s senior management over those jittery days, shared their confidence too. What Sewing was hearing from regulators also told him that they trusted the management of the bank.
But what to make of the market reaction? And how to react to it? Inevitably, speculators were blamed for driving down the stock. As for the credit default swap (CDS) gyration that had prompted the share price fall, the talk was quickly of a single bet repricing the market, a function of the thin trading that characterizes much of it.
This was enough to attract the attention of Andrea Enria, the Italian economist who chairs the supervisory board at the European Central Bank. He told a conference on the following Tuesday how a small trade in single-name CDS could move a bank’s spreads, stocks and perhaps even deposits. He thought regulators should look at CDS a little more.
A less confident institution than Deutsche now is might have panicked and rushed out statements. It is a pattern seen often; each pronouncement more frantic than the last and every one carrying the mounting risk of unintended messages.
Credit Suisse had seen this for itself.
Sewing and his advisers were admittedly wrestling with the idea, poring over no fewer than 10 different drafts of statements that could be issued.
In the end, none were used. All that emerged – and not until the Monday morning – was additional disclosure about the bank’s liquidity and its commercial real estate portfolio, yet another thing markets had been fretting about.
“It was a difficult question, but we decided to keep quiet,” Sewing tells Euromoney. “We had select client calls, and where we felt that we needed to have a bilateral discussion, the management board was very engaged.”
In any case, others were doing the job for him. In Brussels on Friday, March 23, the German chancellor, Olaf Scholz, pointed out that Deutsche was “a very profitable bank”.
This might have played out much more dangerously at almost any other point in the 13 years since the global financial crisis. Think back to 2016, for example, when Deutsche was rocked by persistent worries over its ability to service its additional tier-1 (AT1) debt.
This time it would be different.
“For me, the final evidence of the turnaround in the strategy was that external people were speaking positively about us publicly,” says Sewing. “That was the sign that this bank was a different bank to three or four years before.”
Reshaping the future
The restructuring of Deutsche under Sewing is usually traced back to July 7, 2019, when he unveiled a sweeping plan to reshape the firm, including the radical decision to shut down its equities franchise.
But it was more than a year earlier, in April 2018, that Sewing had become chief executive, after formative stints in risk management roles. He was chief credit officer from 2010 to 2012 and then deputy chief risk officer for a year. He then ran group audit, before becoming the management board member responsible for legal, incident management and group audit.
By the time he took the helm of the bank he had a clear picture of what was needed. Sewing might be a keen tennis player in his free time, but there would be no shots down the line when it came to the bank. After years of bad judgments, the margins were too fine.
“It meant an overhaul of the entire bank in terms of discipline, in terms of focus, in terms of business setup, in terms of cost management,” he says.
And as much as that view reflected his experience, it also reflected where his loyalties did not lie. Unlike many who end up running big banks, he had none of the old trading-floor or investment-banking ties that might have compromised his ability to execute what was needed.
But he also knew he couldn’t change everything in a few months. Just getting to the point where the full restructuring could begin would take some work. To get there, he decided to focus first on those things that he knew the bank could achieve – putting as much legacy legal exposure behind it as possible and cutting costs.
“This bank had lost its cost discipline,” he says. “One of my first goals in 2018 was to achieve an absolute cost cut over the full year – I think this was almost the only target I gave out to the market at that point.”
Costs had escalated astoundingly after the financial crisis, rising 72% between 2008 and 2012. They hit an exceptional level in the heavily loss-making year of 2015, with some €12 billion of litigation, goodwill impairments and restructuring expenses taking the total to nearly €39 billion.
In 2018, costs fell 5% from 2017. Revenues fell too but by 4%. It was a start.
In 2022, expenses totalled €20.3 billion, down €4.3 billion or 17% from 2017, the year before Sewing became chief executive. Over that same period the bank’s cost-to-income ratio fell from 93% to 75%, the lowest it has been since 2009.
Since 2017, headcount at the bank has fallen from 97,500 to 86,700 at the end of March 2023, a drop of 11%. In 2015, headcount had topped 101,000.
Sewing might only have been made chief executive in 2018, but he joined the bank in 1989, fresh out of the Bankakademie Bielefeld und Hamburg. That long service inevitably tempers his criticism. Many things were good about the bank, he insists – after all those years at the firm, it cannot be all negative.
“A few years ago, I think the overriding sense was that Deutsche Bank had lost its balance,” he says. “We went too much into one direction and lost our roots – the sense of where we had come from.”
And where was that? To listen to him now, Sewing’s vision harks back to the days before Anshu Jain and before the man whom Jain succeeded, Josef Ackermann. It might perhaps be more in the mould of the bank led back in the 1990s by Hilmar Kopper – in other words, like the corporate-focused bank that Sewing joined after graduating, but retaining some of the international clout that came thereafter.
Balance is a constant theme.
“What I wanted to achieve with the transformation was to re-establish a global bank but with a balanced business in the private bank, in the corporate bank, with asset management and a focused but successful investment bank,” Sewing says.
In the run-up to the global financial crisis and for a couple of years after it, just over half the bank’s revenues came from its sales and trading, advisory and origination businesses. Since then, that proportion has been declining; in 2022, they accounted for just 36%.
That trend began before Sewing: it started even under Jain, but took firmer hold under the tenure of John Cryan, the outsider given the job in 2015 of salvaging a Deutsche Bank whose reputation was sinking fast.
Back then, Germany’s biggest bank did look like the next Credit Suisse: accident prone, dependent on traders loyal only to themselves and its top producers willing to play right on the edge of acceptable practice. In fact, lacking the Swiss bank’s private banking franchise, Deutsche looked weaker than Credit Suisse.
The difference under Sewing is that the declining weight of those investment banking businesses in the group context has been achieved even while their revenues rise. Since the low of 2019, when the equities business was shuttered, they are up 28%. Before Sewing, they had fallen nearly every year since 2010. And since 2020, the growth rate of the rest of the bank has accelerated.
“We have a very successful investment bank, but an investment bank that is not dominating the bank anymore,” he says. “This bank needed to drive on four cylinders, not only one, and that is what we have achieved.”
One reason that Sewing was so keen on that balance was that he knew it was the way to restore what had been lost within many parts of the institution – pride.
“When you achieve this kind of balanced bank, you achieve something else,” he says. “There are a lot of people in this bank who feel valued again. That pride got lost before. There was the investment bank on one hand and then the other businesses, which were not appreciated as much.”
If his long tenure was not evidence enough, Sewing’s passion for the institution is hard to miss in conversation. It may explain odd glimpses of naivety. He says there was a time a few years ago when “people tried to avoid admitting that they worked for Deutsche Bank”.
He sounds almost shocked at the memory – Euromoney, less so. He thinks the loss of pride was not obvious from the outside: outsiders may choose to differ.
Less debatable is the change in the mood music now. It shows up in client surveys the bank does and in its internal polling of staff.
“It is of course nicer for people to work for a successful organization than working for one that is continuously in the press with bad news,” he adds.
That is one reason why Sewing says he has a very careful approach to target setting. He has seen too many institutions burned – his own included – by not doing what they said they would. By contrast, at his first full-year earnings in February 2019, Sewing led with two points above all else: first, that the bank had made its first profit since 2014 and second, that it had delivered on its targets.
Keep us competitive!
One topic that frequently occupies Christian Sewing’s thinking is bank regulation. In speeches, the Deutsche Bank chief executive has been comfortable calling for regulators to ensure they do not make rules so punitive in areas such as leveraged finance that European banks are unable to support the region in the way that he says they must.
Making this case means negotiating a tricky issue that has emerged since the regional banking crisis in the US in March 2023, which is that European regulators have broadly done a better job of late than their US counterparts; and specifically in the way in which certain standards are applied to the whole sector, irrespective of size.
Sewing gets that point.
“It is true that what happened in March demonstrated that we have done a lot of things right in European regulation,” he says. “I have always said that about 80% of regulation was right.”
But he argues there is room for improvement, and that goes back to his oft-cited point about ‘one Europe’.
“The European Central Bank understandably sets us certain capital requirements, but then we also have domestic add-on requirements – and this can be hard for outside investors to understand,” he says.
On top of all that, of course, there is also the European Union’s Single Resolution Fund.
“What I say is make it simpler and, now that it’s been shown that European regulation works, stop adding on,” says Sewing. “I’m not asking for something to be taken away – it would be the wrong time.
“But if I have one wish it is that regulators and Europe as a whole consider regulations not just from the point of view of resilience and safety but also to stay competitive,” he adds. “The recent Basel package is a good step forward that we would like regulators to build on.”
“I say to the management board: ‘If you meet your targets then this will be reflected in the feedback from clients, the media, shareholders and ratings agencies,’” he says.
This is largely how the last three years have played out. The bank has had a slew of ratings upgrades, while analyst buy recommendations are up. Strategic and financial targets have been met.
The bank was reshaped into four client-centric divisions, which drove the firm’s highest profit for 15 years in 2022. No longer is the investment bank an overweight and volatile unit. The equity trading business was shut down, prime finance was offloaded to BNP Paribas and the rates business was trimmed.
Sewing thinks this kind of progress translates directly into the commitment that his staff are prepared to put in.
“And here I’m not talking just about the investment bankers, but I mean the people working in the branches and in infrastructure functions, who are happy to go the extra mile,” says Sewing. “And I tell you that would not always have happened four or five years ago.”
Not everything has gone right, although Sewing might take comfort from Goethe – 'Es irrt der Mensch, so lang’ er strebt' (man errs when he strives). Sewing’s focus on targets has not been sufficient to ensure that the bank met its own supervisory board’s expectations of cleaning up weaknesses in the bank’s controls in the projected timeframe.
When others are setting the targets, life gets a little tougher.
Deutsche is under pressure from BaFin, Germany’s financial regulator, to improve its anti-money laundering controls. BaFin told the bank in September 2022 to take specific actions to comply with its requirements – and has appointed a special monitor to check on progress.
All this has run more slowly than the regulator or the bank’s supervisory board would like – a view reflected in the somewhat dry assessment of the supervisory board in Deutsche’s 2022 annual report.
“Despite recent progress, the supervisory board believes that the overall extended timeline on which the remediation has taken place and the re-planning and/or missed milestones in certain areas need to be recognized in the management board’s compensation,” the supervisory board wrote.
The cut shaved about €1 million off senior executive pay.
Sewing wants the outside world to judge the bank’s achievements so far in the wider context. As he notes, when the bank embarked on the restructuring in 2019, no reasonable prediction would have included a pandemic or a war. Most would not have included double-digit inflation.
“The fact that this bank achieved its goals despite these three things, which were not in any playbook and where you cannot have a ready PowerPoint presentation, really shows the passion, dedication and potential this bank has,” he says.
It is a fair point to make. The bank of course also had to manage its way through the March 2023 banking turmoil, events that although feared for some time had not been precisely predicted.
Watching the market doubt the bank at that time, even for a day, must have been frustrating. But given the history, it was perhaps not surprising.
That sense of a bank that had lost its roots runs deeply through Sewing. Finding them again is a big part of what he intends to do by making Deutsche into a 'Global Hausbank', something he says also underlies the bank’s growth strategy.
The phrase was used as the title of a history of the bank published in 2020 by three academics, Werner Plumpe, Alexander Nützenadel and Catherine Schenk, to celebrate Deutsche’s 150th anniversary. Even three years on it is hard to escape the book, all 2.2 kilos of it, lurking on sideboards in the bank’s meeting rooms.
Very deliberately, the phrase was also the central theme of Sewing’s investor deep dive in March 2022. In a note to all employees, Sewing said it meant a bank that was the first port of call for clients, with a global network and local expertise, and with excellent risk management, products and technology.
“In short,” he wrote, “a Global Hausbank is a reliable partner no matter what.”
That message, coming as it did shortly after the invasion of Ukraine by Russia, was nothing if not timely.
“Probably at no point in time since the fall of the Berlin Wall has the need for such a partner been as great as now,” he told his staff.
For corporations, that partnership stems from strengths that previous generations of top Deutsche executives had taken for granted, such as transaction services and commercial banking.
The greatest care in implementing that Hausbank vision more fully will come with the efforts to build back in certain areas of investment banking that Sewing felt had dominated the bank too much in the past.
Revenues have risen across the firm, even in the investment bank at a tough time for capital markets and despite Deutsche cutting its equities business. But some of the longstanding weaknesses remain. Despite the bank’s vaunted corporate focus, it still struggles sometimes to nail the mandates it would like and knows its own people would expect it to win.
The Porsche IPO in 2022 was a painfully obvious example, where the four global coordinators were all US banks. Deutsche had to settle for a joint bookrunner role – not nothing, but also not ideal – and the retail tranche.
Does Sewing recognize a coverage weakness? And does the demise of Credit Suisse, where many of the bank’s recent hires have come from, offer an opportunity to address it?
Sewing dodges the point a little. He says the current balance of the businesses – with about 35% of revenues coming from the origination, advisory and trading units – is broadly where the board wants it.
But in the last year the group as a whole has been able to benefit from a big rise in net interest income (NII). In the last four quarters, NII has risen 26%, while non-interest income fell 6%. The trend to wider net interest margins will not last for ever – it may have peaked. Sewing is already planning for when it ends.
“I need to prepare the bank for a situation where NII is, again, less favourable than this year or next year,” he says.
That means bolstering the other income streams – including, he is keen to note, wealth management, where he has been hiring in southern Europe and Asia.
But it also means going for more capital markets fee-based business to sit alongside his sales and trading machine in fixed income and currencies (FIC). This is Sewing going back to his default state, a risk manager, always looking for diversification and balance, at group level and within the divisions.
“We are very strong in fixed income and debt capital markets – I think the FIC business is just outstanding – but we now need to strengthen the origination and advisory business because FIC is volatile,” he says.
It certainly is. From €9.5 billion of revenues in 2012, it sank to €4.9 billion in 2017. In 2022, it reached €9 billion again, its fourth best year ever.
There will doubtless be another decline in 2023. Deutsche’s FIC revenues fell 17% year on year in the first three months of the year and investment bank executives at rivals have been telling recent conferences that their own sales and trading results will be down again in the second quarter.
Sewing thinks the origination and advisory business across the industry has probably reached its low point. It looks to have done for Deutsche, at least, although the bank’s results are noisier than some because it puts leveraged finance markdowns through its debt capital markets line, which not all banks do.
Those losses, and a bad block trade in equity capital markets, are why the bank posted an astoundingly low €4 million of revenues across ECM and DCM combined in the third quarter of 2022. Excluding disclosed leveraged finance markdowns, the low for origination and advisory at Deutsche was the fourth quarter 2022 result of €195 million.
In the first quarter of 2023, that had risen to €326 million.
Sewing’s confidence that the industry is turning and his desire to strengthen in capital markets must have been factors behind his surprise move to buy the UK broker Numis in April for £410 million.
“I see signs of recovery in the M&A market and the ECM market,” he says. “We took the opportunity of the industry being in a downturn and our reputation improving to grow the platform with the Numis acquisition and the selected hiring.”
A European union
There is another driver behind Sewing’s commitment to building a stronger Deutsche – his vision of how essential the institution is to the success of Germany and, therefore, of Europe.
“I am a firm believer that Europe can only stay competitive in the world if we have one Europe, and so we need to finalize the single market on each and every level,” he says.
He is looking far beyond the banking industry here.
“How can it be that we have dozens of telecoms providers for 450 million people and in the US, there are four providers for 350 million people?”
He is more positive than some on the prospects for greater European union. He points to the way the region has come together at times of crisis: with the NextGenerationEU fund to provide pandemic support, for example, and in its backing for Ukraine.
Giving him yet more hope is the fact that until the current administration there had never been a German government that had the objective of finalizing capital markets union written into its coalition contract.
On top of that, German finance minister Christian Lindner and French economy minister Bruno Le Maire have worked together in calling for progress on capital markets union and unlocking the potential for securitization in Europe – despite locking horns in other areas such as debt reduction targets.
And Sewing believes that the banking sector also speaks with one voice on much of this.
“The alignment of European bank chief executives on these topics is almost 100%,” he says.
What real union would bring to Europe is scale, he argues – the kind that will be needed to help finance the European Union’s Green Deal and other transition work. And Germany must play a key part in ensuring it happens.
“This is how I define my task at Deutsche Bank,” says Sewing. “I am a happy and loyal steward of the bank, but I am preparing this bank for the next generation. And that generation will only be successful if Europe acts as one.”
He sounds like a man on a mission, one that goes beyond mere concerns about how well he or his European peers can compete with the Wall Street firms who too often eat their lunch. But right at its heart is still the bank he runs.
“If you assume that Germany will play an integral part in this and be its economic engine, you cannot do that without a strong domestic bank in Germany that is also playing an international role and which is helping to drive growth,” he says.
“There is only bank that is designed to do that, and that is Deutsche Bank.”
Not succession: Sewing on his management reshuffle
In late April 2023, Deutsche Bank’s chief executive, Christian Sewing, announced a raft of changes to his management board – designed, he said, to sharpen its focus on strategy execution.
The moves also accommodated two departures. Karl von Rohr, who oversaw the private bank and asset management divisions, had already told the bank that he would not been seeking to renew his management board contract when it expired in October 2023 and so would leave after more than 25 years at Deutsche.
Christiana Riley, credited with having brought new energy to the bank’s Americas franchise, where she was chief executive, left to run Santander’s North America business.
James von Moltke, the bank’s chief financial officer, took on additional responsibility for the asset management division. Chief administrative officer Stefan Simon added the Americas to his portfolio and Claudio de Sanctis stepped up to run the whole private bank, having previously been head of its international division.
As these things often do, the reorganization looked from the outside to have an element of succession planning about it. Did it?
Unsurprisingly, Sewing is dismissive of that suggestion.
“I see myself as very passionate about the bank,” he says.
The changes, he says, were chiefly to ensure that cost management can move smoothly into its next phase. The last three or four years, he notes, were the easy bit, in the sense that it was fairly clear how to start making a difference. Now comes the more difficult but still essential part of the task.
“We absolutely believe there is another €2.5 billion of cost savings to get,” he says. “But to do this, we need to take out costs front to back, which means we design a process and then need to make sure that everybody in the bank’s infrastructure follows it.”
His reshuffle made one person centrally responsible for that effort – Rebecca Short, taking on an expanded chief operating officer role with explicit responsibility for costs. She had previously headed the transformation of the bank, taking on that role from Fabrizio Campelli in March 2021, when Campelli moved to run both the corporate bank and the investment bank.
“I put Rebecca into this role because she understands the bank, and there is no more disciplined or hardworking person to make sure that we get these costs out,” says Sewing.
The promotion of de Sanctis comes back to Sewing’s need to prepare for a time when net interest income starts to weaken.
“[De Sanctis] knows the investment business, he knows how you grow the fee-related business, and he has shown that on both the retail side and wealth-management side,” says Sewing. “I want him to transfer that knowledge into Germany.”
That is because Sewing sees the opportunity in Germany as “unique”, largely because of one of the country’s big problems – its demographics.
Germany is getting old and is set to get much older. A report in December 2022 by Statitisches Bundesamt, Germany’s federal statistics agency, warned that by 2035 the number of people of retirement age would rise by four million to at least 20 million. And after the 2030s, the number of those aged 80 or over would increase “massively”. At the same time, the working population will fall.
Sewing’s conclusion is that people need far more self-funded pension investments and therefore more advice from banks. In 2018, Deutsche merged its own private bank with its retail banking subsidiary Postbank, which it acquired in 2010 but had struggled to make work.
With the two entities’ IT systems now integrated, Deutsche has 15 million Postbank clients to advise. Sewing sees de Sanctis as the man to lead that effort.