Category Archives: Deutsche Bank

(ZH) Deutsche Bank To Spend About $2 Billion On Bonuses, Despite “Cuts”

(ZH)

Distressed Deutsche Bank plans on cutting the company’s bonus pool by about 10% this year as the bank struggles to stay afloat, while at the same time trying to retain employees, according to a new Bloomberg report.

Bonuses are going to be paid more selectively in an attempt to keep the people that earn the most for the bank, according to the report. The bank awarded about €2.2 billion in bonuses ($2.5B USD) for 2017, meaning that the company could still be spending ~€2 billion on bonuses this year, even after the targeted 10% cut. The bank’s CEO, Christian Sewing, is said to be trying to “keep a lid” on costs.

Tim Zuehlke, managing partner at Frankfurt-based executive search firm FRED, stated: 

“Deutsche Bank has a severe talent loss problem and this bonus cut will exacerbate the problem. Focusing on top performers is not new and not the solution.”

The bank’s stock has been slaughtered over the last year and the share price is currently less than half of where it needs to be for retention awards that have already been issued to employees to vest. This is causing some top performers at the bank to consider leaving, while frustrating others.

Since Sewing has taken over, top talent like Tadhg Flood, co-head of Deutsche Bank’s global team of bankers advising financial-services clients and Charlie Dupree, its top M&A dealmaker in the Americas, have already left the company.

The bank’s revenue for 2018 is slated to be the lowest since the 2008 financial crisis and the article notes that the bank’s fourth quarter was “negatively affected by police raids on the lender’s headquarters in November”. Meanwhile, the bank’s CFO, James von Moltke, used the all-to-vague and perfunctory “weak market environment” excuse for the decline in revenues. 

The bank’s new CEO has already announced his intention to cut 7,000 employees by the end of this year and the bank said it has already cut 1,000 front office jobs in the second and third quarter of 2018.

(Barrons) Why It’s Time to Bail Out of Deutsche Bank

(Barrons)

Deutsche Bank headquarters in Frankfurt.
Deutsche Bank headquarters in Frankfurt. Photograph by Thomas Lohnes/Getty Images

There’s not much to love about Deutsche Bank . The German banking giant is mired in legal woes, the stock is expensive, and a restructuring will dog its performance for some time. Deutsche Bank shares have the potential to fall 30% on top of already-brutal declines. “We fail to see an improvement in the underlying business,” said a recent Morningstar report. Third-quarter results “were underwhelming,” and while layoffs and a restructuring are “well under way…most of the work still lies ahead.”

Deutsche Bank (ticker: DBK.Germany) shares have taken a beating, shedding more than half of their value over the 12 months through Dec. 6. Contrast that with a 8.1% loss of theFinancial Select Sector SPDR exchange-traded fund (XLF), which tracks a basket of bank stocks, over the same period.

Part of the problem is a toxic cloud of scandals. Earlier this week, German authorities settled with the bank over questionable tax deals, and in late November six offices in Frankfurt were raided over allegations of money laundering, a charge that has cost the bank dearly over the past few years. “[R]aids that take place with reasonable frequency in Germany aren’t that well understood outside of Germany,” said the bank’s CFO, James von Moltke, in a TV interview. “Our focus is obviously on cooperating with the prosecutors making sure that we satisfy their requests and hopefully putting the investigation fully behind us.” Deutsche Bank declined to comment further.

Still, that doesn’t make Deutsche Bank stock a buy—and investors should consider dumping it in any forthcoming rallies. Or alternatively, purchase out-of-the-money put options that will pay out if the stock falls.

Deutsche Bank is pricey. Its forward price/earnings ratio is 16.7 versus an average of 13.1 over the past five years, according to Morningstar data. Just across the English Channel, the similarly sized United Kingdom–basedLloyds Banking Group (LLOY.UK) trades at a forward P/E of 7.6, down from 10.5 in 2016. In other words, Deutsche Bank is a lot more expensive than Lloyds, even if you don’t consider performance. Deutsche lost money in the past three calendar years, while Lloyds has been consistently profitable since 2014.

If Deutsche Bank shares traded at the same P/E as Lloyds, then it would be worth $6.24 versus the current $8.89. That price level is slightly higher than that produced with technical analysis. “A 5-handle is not out of the question,” writes J.C. Parets, founder of AllStarCharts and a technical analyst. A 5-handle means that the stock would be worth from $5 to $5.99.

The bank’s prospects look uncertain. “We expect DB’s top line to be negatively impacted by revenue attrition from its decision to downsize the business in recent years,” noted a December report from research firm CFRA. “The European Central Bank’s decision to delay an interest-rate hike into the later part of 2019 will also hurt its interest margin.” In other words, the bank’s profit-making ability is hampered by low borrowing costs.

“If the company can’t make money when there are no setbacks and financial crises, then tell me how it survives the next recession,” says Don Coxe, chairman of Chicago-based financial firm Coxe Advisors.

There are risks of dumping the stock. The scandals may blow over, the restructuring may go better than expected, and the stock may rally. A Bundesbank official recently told Bloomberg: “Experience since the financial crisis has shown that even large institutions are capable of resolutely changing tack. But this takes time.”

(ZH) Deutsche Bank Cleared Nearly All Of $234 Billion In ‘Suspicious’ Funds For Danske Bank

(ZHDeutsche Bank shares have continued to break through successive all-time lows following news that Frankfurt prosecutors are pursuing charges against DB employees (and possibly the bank itself) over allegations that the bank’s wealth management unit helped launder money for criminals and other tax cheats – allegations that surfaced in the infamous ‘Panama Papers’ leak from 2016. Meanwhile, a parallel scandal has been brewing over DB’s involvement in the Danske Bank money laundering scandal – one of the biggest in European banking history.

Last month, the Danske whistleblower who helped lead regulators to the endemic processing of ‘suspicious’ money flowing out of Russia, Moldova and into Western capitals suggested that Deutsche Bank helped clear $150 billion of the $234 billion deemed suspicious by a Danske internal audit (some clients of Danske’s Estonian branch are believed to have had ties to Russian President Vladimir Putin) . And on Thursday, press reports added another $35 billion to that figure. According to the Financial Times, which cited an internal DB memo, Deutsche cleared a total of nearly $200 billion for Danske’s Estonian branch between 2007 and 2015. This means that Deutsche Bank cleared more than 4/5ths of the purportedly suspicious funds flowing out of the Danish bank’s Estonian branch. Over the eight year period, DB processed some 1 million transactions, according to the memo, and never once bothered to question the provenance of these massive sums of money, which dwarfed the annual GDP of Estonia.

This revelation follows reports that regulators in the US and Europe are looking into Deutsche Bank’s role in the scandal. A Deutsche spokesman said the bank is cooperating with all inquiries. Howard Wilkinson, the former Danske executive-turned-whistleblower,told the Danish Parliament last month that Deutsche cleared roughly $150 billion through a US-based subsidiary.

Deutsche stopped clearing money for Danske’s Estonian branch in 2015, two years after JP Morgan dropped Danske Estonia as a client, after complaining that its compliance department had flagged too many examples of suspected money laundering. But the memo obtained by the FT revealed that even as DB stepped away from dollar clearing, it continued to process payments denominated in euros, totaling some 225 million euros ($256 million) between 2015 and 2018 (though Deutsche’s membership in the Single Euro Payments Area means that it was obliged to process these payments).

This means that Deutsche could face further legal penalties related to three separate scandals: The infamous Russian mirror-trading scandal (Deutsche paid more than $600 million in fines to US and UK authorities last year but US authorities are continuing their investigation), the ‘Panama Papers’ AML violations and the Danske scandal.

Despite these mounting legal risks, Deutsche affirmed on Thursday that it would not raise its provisions for legal judgments,likely leaving the bank vulnerable to more fines (Deutsche has already paid some $18 billion in fines since the financial crisis), which could seriously impact future earnings.

P.O. (FT) Deutsche Bank needs a bold and swift restructuring

P.O.  

I am afraid, and as i wrote dozens of times, here is no hope whatsoever for Deutsche Bank.

Just take a look to the thousands of cases, (that we know of…), that might have a significant impact in the balance sheet…

No way José, again in my opinion.

Francisco (Abouaf) de Curiel Marques Pereira

(FTDeutsche Bank needs a bold and swift restructuring

(ZH) Bill Black: Deutsche Bank Crimes Could Trigger Next Global Crisis

(ZH) The International Monetary Fund (IMF) previously deemed Deutsche Bank as the most systemically dangerous bank in the world.

Professor of Economics and Law, William Black, knows why and contends:

“Deutsche Bank (DB) poses as what is called a ‘National Champion’ bank and the largest bank by far in Germany, but it’s actually the largest criminal enterprise in Germany. This is quite a statement because VW is such a massive fraud…

It is insane that we allow Deutsche Bank to go from fraud to fraud to fraud…

They cheat on everything else you can possibly imagine and, typically, they are getting caught, which is also not a very good sign in terms of their competence even as thieves. Even in the United States, there has been reluctance to crack down on Deutsche Bank…

When the New York Commissioner tried to crack down, the Office of the Comptroller of the Currency, the premier banking regulator, actually sought to impede that. He disparaged the New York folks and said there really wasn’t that big of problems and such, and all of that proved to be lies.”

Deutsche Bank was raided by German regulators last week on more allegations of fraud and money laundering.

DB is the epitome of “Too Big To Fail.”

So, it will never be allowed to fail, and regulators will not be allowed to regulate them properly. Professor Black says, “Why you should care is Deutsche Bank impedes effective regulation everywhere and because God only knows the next thing they are going to do…”

“This is going to continue until something dramatic changes. Eventually, they can cause the next crisis…

There will be a bailout in these circumstances, but that could help trigger another economic crisis. When the largest bank in the third largest economy in the world is completely dysfunctional, then the German economy is more likely to go into recession as well. That is one of the potential sources of the next recession, and you can see lots of people warning that there are signs that a serious recession is pretty likely relatively soon. Relatively could be two years.”

Professor Black, who was a top regulator in the S&L crisis, says,

“The whole system weakens itself because it gets caught in this big lie that says we have to pretend that Deutsche Bank is a bank instead of a criminal enterprise.”

In closing, Professor Black says,

I am going to give you the advice you get after the recession before the recession. Pay off your debt, all that you can. Do not keep borrowing except in certain circumstances like you are going to buy a home, and it is prudent purchase. Buy a car when you can buy it with cash whenever possible…and always try to be a net saver.”

Join Greg Hunter as he goes One-on-One with Dr. William Black, Professor of Economics and Law at University of Missouri Kansas City.

(Correction: Deutsche Bank has a market cap of $19.5 billion and not $1.5 billion as I mistakenly said at the beginning of the interview. Also, Germany’s GDP fell .2% recently and not 2% as I stated later in the interview.)

(BBC) Deutsche Bank headquarters raided over money laundering

(BBC)

Police cars outside Deutsche Bank officesImage copyrightREUTERS

The Frankfurt headquarters of Deutsche Bank have been raided by prosecutors in a money laundering investigation.

Germany’s public prosecutor alleged that two staff members have helped clients launder money from criminal activities.

Police cars were seen outside the tower blocks that house the headquarters of Germany’s biggest bank.

Other Deutsche offices in the city were searched in an operation involving about 170 police and officials.

Prosecutors are looking into whether Deutsche Bank staff helped clients set up off-shore accounts to “transfer money from criminal activities”.

The investigation was sparked by revelations in the 2016 “Panama Papers” – an enormous amount of information leaked from one of the world’s most secretive companies, a Panamanian law firm called Mossack Fonseca.

Other banks, including Sweden’s Nordea and Germany’s Handelsbanken have been fined as a result of information contained in the Panama Papers.

Deutsche Bank shares fell 3% after news of the raid emerged. The company confirmed that police had raided several locations in Germany and that it was co-operating fully with the probe.

Paperwork and electronic documents were seized by officials during the raids on the bank’s properties.

 

(EUobserver) Deutsche Bank dragged into Danish bank scandal

(EUobserver)

  • Deutsche Bank: “We terminated this relationship … after identifying suspicious activity”. (Photo: Reuters)

Deutsche Bank, Germany’s top lender, handled about €130bn of the “suspicious” money in the Danske Bank affair – the biggest money-laundering scandal in EU history.

“Deutsche Bank acted as correspondent bank for Danske Bank in Estonia. Our role was to process payments for Danske Bank. We terminated this relationship in 2015 after identifying suspicious activity by its clients,” the German lender told press on Tuesday (20 November).

  • Danske Bank is Denmark’s top lender, holding assets worth 140 percent of the country’s GDP (Photo: danskebank.com)

A “correspondent bank” acts as an intermediary for other banks in countries where they do little business.

In this case, that meant Deutsche Bank helped Danske Bank’s clients in Estonia to move money into the US financial system.

Those clients were intimates of Russian president Vladimir Putin, Russian intelligence services, Russian mobsters, and members of the Azerbaijani elite, according to findings in Denmark.

Hundreds of millions of the funds were also ‘blood money’ linked to the murder of Russian anti-corruption activist Sergei Magnitsky, Magnitsky’s former employer, Bill Browder, has said.

The Deutsche Bank revelation comes after a Danske Bank whistleblower, Howard Wilkinson, testified to Danish MPs on Monday.

“I would estimate that $150bn [€130bn] has flowed through this particular bank”, Wilkinson said.

He named the bank only as a “US subsidiary of a European bank” and a “major correspondence bank handing US dollar transactions” because a Danske Bank gag order forbade him from saying more.

He said two US banks were also involved, with the Reuters news agency, citing sources, saying that these were JP Morgan and Bank of America.

“Nobody really knows where this money went, all we know is that the last people who saw it were people from those three banks in the US. They were the last control, and when it went awry was the money in the global financial system,” Wilkinson said.

“There’s no chance in the world that any of the suspicious money … will ever be traced or that any of those criminals will ever lose a single cent of it,” he added, given that it has already taken years for the scandal to come out.

Showdown in parliament

The fresh revelations set the scene for Wilkinson’s second testimony, due in the European Parliament on Wednesday.

The acting CEO of Danske Bank, Jesper Nielsen, will also take part, with MEPs, such as Danish centre-left deputy Jeppe Kofod, set to urge him to tear up the non-disclosure agreement that his bank forced Wilkinson to sign under threats of financial penalties.

The German and US banks all terminated their business with Danske Bank between 2013 and 2015, but the dodgy funds had flowed through their accounts for more than five years before they washed their hands.

The news saw Deutsche Bank’s shares fall a further three percent on Tuesday amid concern that German and US regulators might impose fines.

Deutsche Bank already paid €550m in fines to British and US regulators in 2017 for having funnelling about €9bn of illicit Russian money.

The scandal, which was itself the biggest in EU history before the Danish affair, saw Bafin, the German regulator, install a “special representative” in Deutsche Bank to oversee anti-money laundering compliance in an unprecedented step.

The US Department of Justice is still investigating the €9bn case in a process that could see the German lender pay out further penalties.

The Danish affair has prompted the European Commission to table new anti-money laundering laws to help clean up the European banking system.

More to come?

But if Danske Bank lifts its gag order on Wilkinson it could lead to further revelations of how small EU countries with large offshore banking sectors act as a conduit for dirty money into the EU and US financial system.

Its Estonian branch aside, there was a “deafening silence” on what Danske Bank’s Lithuanian branch has been doing, Wilkinson said on Monday.

Cyprus, Malta, and Latvia are also weak links in the EU’s anti-money laundering chain, Panicos Demetriades, Cyprus’ former central bank chief, previously told EUobserver.

The “political pressure” on bank supervisors in these countries was “so great that it’s very hard for them to do the right thing,” he said.

Banks in Cyprus handled €3.4 trillion of cross-border transactions including by non-resident or offshore clients between 2008 and 2015, according to European Central Bank (ECB) data obtained by the Bloomberg news agency in October.

Latvian banks handled €2.8 trillion and Estonian ones €900bn, the ECB said, indicating that the Dankse Bank and Deutsche Bank scandals could be just the tip of the iceberg.

(ZH) Deutsche Bank, Again?

(ZH) Whenever we see markets tanking as they have been for the past few days with the Dow down almost 1,000 points (3.7 percent) since Friday’s close, we think counterparty risk may be spooking traders and investors.   We suspect, and we could be wrong, there is a growing concern over Deutsche Bank’s (DB) stock making new all-time lows.

We see a lot of hits on our blog today on our past posts about Deutsche Bank.

Biggest Globally Systemically-Important Bank (GSIB)

Deutsche Bank, which has been labeled by the IMF as the biggest contributor to global systemic risk,  hit a new all-time low in Frankfurt this morning, closing at around €8.17,  down over 91 percent from its pre-GFC high and almost 50 percent year-to-date.  The latest hit comes from its involvement with Danske Bank, who is wrapped up in a money laundering scandal in Estonia.

Whenever a GSIB stock is making a new low,  it’s time to sit up, stand up and listen.

No Lehman

Deutsche is no Lehman Brothers. The Germans will never let its flagship fail and neither would world policymakers.

 

The bank is not dependent on wholesale funding from the markets and finances itself mainly through a large deposit base.  The DB chart below illustrates its 77 percent deposit-to-loan ratio.

Also see the IMF chart on the bank’s horrendous return-on-equity, which many believe is the reason why the stock is tanking and not over balance sheet concerns.

Nevertheless, DB has, the last time we looked, the world’s largest derivatives book, and as the stock goes lower the risk of spooking its counterparties moves higher.   The German government and EU regulators must be cognizant of these risks,  not dilly-dally,  and show firm resolve to the markets

The lower the stock goes the higher the probability the German government will be called upon for a capital injection.  Deutsche Bank will not be allowed to fail as the world will end as we know it.

German Sovereign CDS

DB’s credit default swaps have risen from 120.7 bps in September to 155.7 bps, but have not yet taken out the May 188 bps high, however.

Deutsche Bank is relatively big.  It’s total assets are equivalent to about 47 percent of German GDP, which compares to JP Morgan,  the largest U.S. bank,  and though larger than DB is asset size, is only around 12 percent of GDP.   The large bank to GDP size throughout Europe is a reflection the continent is way overbanked.

Buying German sovereign 5-year credit default swap protection at 13 basis points seems like a good, cheap, positive asymmetric bet on DB event risk to us.   If the Merkel government is called upon to bail out DB, the sovereign’s CDS rates move higher, in our opinion.   The cost of being wrong is a few basis points of carry over the next few months.

No peep from the talking heads today about DB, folks, so this definitely has the potential to hit the market by surprise. Keep it on your radar.

(ZH) Whistleblower Implicates Deutsche Bank In $150 Billion Money Laundering Scandal

(ZH) Just when Deutsche Bank probably thought the worst of its legal troubles (over the Libor scandal, sales of shoddy mortgage-backed securities, FX and precious metal rigging which collective resulted in tens of billions in legal fines) were behind it, the struggling German lender is being drawn deeper into the biggest money laundering scandal in European history.

Following reports over the weekend that Deutsche, JPM and Bank of America had been approached by federal investigators about their correspondent banking business’s involvement in clearing transactions for Danske Bank’s Estonian branch, the whistleblower who helped blow the lid off Danske’s $234 billion money laundering scandal said during testimony to the Danish Parliament that $150 billion of the money had been cleared by a large European lender, stopping short of naming Deutsche, likely to respect confidentiality rules governing the whistleblower’s work at Danske. Incidentally, as Bloomberg adds citing a “person familiar”, the unnamed bank is Deutsche Bank.

Deutsche continued to clear transactions for Danske’s Estonia branch until 2015, two years after JPM had ended its correspondent banking relationship with Danske’s Estonia branch over AML concerns. The suspicious funds flowed through Danske between 2007 and 2015 before Denmark’s largest lender closed its non-resident portfolio over AML concerns.

DB

In an internal audit released earlier this year, Danske admitted that most of the $234 billion in non-resident cash came from suspicious sources in Russia, Azerbaijan and Moldova. With the help of its dollar-clearing correspondent banks, Danske converted the rubles and other foreign currency into dollars and moved it into the Western financial system. Roughly $8 billion of the money was converted via legal-though-shady “Mirror Trades”, where a client buys and sells a security in two different currencies, typically to help launder their money into dollars and euros (in a strange but sadly unsurprising coincidence, Deutsche’s Moscow desk got caught up in a mirror trading scandal of its own a couple years back).

Howard Wilkinson, the former Danske employee-turned-whistleblower, claimed that some of the money flowed through a London-based trading firm called Lantana Trade, which is rumored to have ties to the family of Russian President Vladimir Putin and members of the FSB. Wilkinson is expected to testify before both the Danish and EU parliaments this week, and will also be speaking with US investigators, according to the Financial TimesIn addition to the DOJ and SEC, FinCEN has said it is actively interested in the Danske case.

Wilkinson, who first warned Danske’s directors in Copenhagen about suspicious activity in Estonia back in 2013 and 2014, also alluded to a “large US bank,” which the Financial Times identified as JPM.

Mr. Wilkinson also hit out at “large US bank 1” — known to be JPMorgan Chase — which stopped its correspondent banking relationship with Danske in 2013 over concerns about the non-resident portfolio in Estonia at the heart of the scandal which ran from 2007 until 2015. “It takes them seven years,” he said, of how long it took them to end their relationship with Danske.

In the past, correspondent banks involved in money laundering scandals similar to Danske’s have been treated as unwitting dupes by prosecutors. But the aggressive steps being taken by US prosecutors (regulators in Denmark, London, Estonia and the EU are also looking into the scandal) suggest that this could be the beginning of a crackdown that could fundamentally change how large international banks manage AML controls on their correspondent banking business.

That, in turn, could create serious problems for Baltic banks, which might find themselves effectively cut off from the broader global financial system, even if they take the necessary steps to tighten their AML controls. According to meeting minutes first reported by the FT, Danske directors acknowledged the suspicious activity in Estonia, but by April 2014, Wilkinson said it had become clear that the bank wasn’t planning to act. Indeed, former Danske CEO Thomas Borgen, who had previously run the bank’s international business, had reportedly taken steps to protect the Estonian branch, which Danske took over during its acquisition of Finnish Sampo Bank.

We’ll give you one guess as to why:

Danske

(ZH) Deutsche Bank Shares Tumble After Net Income Plunges 65% On Lowest Revenue In 8 Years

(ZH) There was some good, but mostly bad news in Deutsche Bank’s Q3 earnings report.

The good news is that after years of turmoil, the biggest German bank is showing signs of stabilization under new CEO Christian Sewing after a bitter boardroom battle. The bad news is that the bank missed across all key revenue metrics as Sewing scrambles with a looming problem: how to boost revenue after firing thousands of banks in a multi-year long cost-cutting campaign.

The German bank reported net income of €229 million on Wednesday, above the €160 million expected but 65% below the €649 million reported a year ago. Profit before tax also tumbled by nearly half, dropping from €933 million to €506 million.

Investors were closely watching the bank’s costs: the new management team, which was appointed last April, promised to deliver further cost-cutting to revamp the balance sheet. In the third quarter of 2018, the bank said that adjusted costs dropped 1% from a year ago to 5.5 billion euros, with the aim for the full year to bring adjusted costs down to €23 billion and €22 billion in 2019. A core part of the new “restructuring” effort have been mass layoffs as the number of workers is set to come down to 93,000 by the end of 2018, and 90,000 one year later.

But while costs and the bottom line beat were a modest positive surprise, the same could not be said for the bank’s revenue which disappointed across the board: total revenue of €6.17BN missed expectations of €6.34BN and guided lower, now predicting a slight decline for full year revenue after earlier guiding for a flat result; trading income in the key FICC division tumbled 15% from a year earlier, while equities trading, a sector where Wall Street banks generally posted gains, also dropped at the same pace as these two key businesses have been hardest-hit by executives departures recently.

More Q3 revenue details:

  • FICC revenue: €1.32BN vs €1.545BN in Q3 2017, and missing expectations of €1.365BN
  • Equities trading revenue: €466BN vs €548BN in Q3 2017, and missing expectations of  Exp. €473BN
  • Total sales and trading revenue: €1.79BN, missing expectations of €1.84BN
  • Total revenue: €6.17BN, missing expectations of €6.34BN

In total, Deutsche reported its lowest third-quarter revenue since 2010 and now expects a slight decline for the full year, after earlier guiding for a flat result according to Bloomberg.

The silver lining is that while revenue was a disappointment, costs also shrank which should allow the bank to post its first annual profit in four years according to Sewing who added that the focus now has to be on growing the top line without compromising controls: “With profit before tax of 506 million euros, this result is another milestone on our way to becoming a sustainably profitable bank. We have our costs under control and sufficient capital to grow. We are on track to be profitable in 2018, for the first time since 2014.”

Of course, being profitable by butting into the muscle is hardly what shareholders expected, and the CEO admitted as much writing in a memo to employees that while “we made headway on our cost reductions,” he admitted that “we have not yet achieved a turnaround in terms of revenues.

As Bloomberg notes, for investors who have been through the bank’s previous turnaround plans, “it’s a familiar pattern.” John Cryan, Sewing’s predecessor, had vowed to restore “controlled growth” last year after raising fresh funding, but failed to deliver. Sure enough, the stock was promptly punished for this latest disappointment, with Deutsche Bank shares falling 3.5%, having lost 44% of its value this year and trades near its record low.

Sellside reactions were mixed, with JPM analyst Kian Abouhossein writing that Deutsche Bank “has done an excellent job under Sewing” on cost reductions and improving the bank’s capital strength, however “we remain concerned about DB’s inability to turn around” the investment bank division.”

On the other hand, Goldman analyst Jernej Omahen was more critical, writing that the third quarter results were “weak” from an operational perspective, noting underperformance relative to U.S. peers in investment bank revenue progression, as well as the underlying pretax profit miss. The silver lining: capital was better-then-expected, as was bottom line, due to lower burden of non-operating items.

But the one recurring theme was the lack of top-line growth: “Costs are in line with targets,” said Daniel Regli, an analyst with MainFirst who has a hold recommendation on the stock. “But there is continued weakness in investment bank revenue. That needs to be fixed.”

* * *

Sewing had staked his restructuring effort, and Deutsche’s fourth in three years, on boosting profitability by trimming costs and refocusing on fewer, core activities. Yet the continued contraction in the top line risks undermining investor confidence in the strategy and may fuel speculation that the lender needs to combine with a rival in the long run, BBG adds.

The new CEO has vowed the investment banks will remain a core business for Deutsche Bank, with at least half of the revenue coming from the unit. And yet, he’s cutting at least 7,000 jobs and retrenching in areas such as prime finance, U.S. rates and corporate finance in the U.S. and Asia. The bank cut another 700 positions in the third quarter after eliminating about 1,700 jobs in the three months through June; it said it remains on track to hit its job target of well below 90,000 by end of 2019.

The bank’s steady exodus of employees has left the business stuck in what CFO James von Moltke called a “vicious circle” of declining revenue, “sticky” expenses, a lowered credit rating and rising funding costs. Additionally, the bank on Wednesday highlighted higher funding costs and geopolitical events among the headwinds for the securities unit.

Meanwhile, as the one-time financial titan continues to shrink, all management can do is try to boost morale: Garth Ritchie, head of the bank’s securities unit urged employees in a memo to “focus resolutely on rebuilding revenue momentum” in the final quarter; surely a preferable alternative to being fired. Von Moltke said on a conference call that the bank wants to redeploy excess cash to return to growth, as restructuring expenses are likely to be lower than previously expected. He said rating companies would be comfortable with such use of capital.

“We need to end the year on a strong note,” Sewing wrote in his memo. “We’ll stay disciplined on costs, and we’ll turn around revenues.”

Indeed…

(ZH) German Regulator Orders Deutsche Bank To Take Action To Prevent Money Laundering

(ZH) With Europe still reeling over the recent revelations of Danske Bank’s $234 Billion money-laundering scandal, another target emerged moments ago – and a far more prominent one – when Germany’s markets regulator ordered Deutsche Bank to “improve its controls to prevent money laundering and the financing of terrorism.”

The regulator BaFin instructed Deutsche Bank to “take appropriate internal safeguards and comply with general due diligence obligations” under German law, Bloomberg reported. Suggesting that there may be far more behind the scenes, BaFin also appointed a monitor to assess the bank’s efforts, the first time BaFin has taken such action against a bank in relation to money laundering, the authority said in a statement on Monday.

In August, Deutsche Bank acknowledged that its anti-money laundering processes remained inefficient more than a year after it was fined almost $700 million for helping wealthy Russians move money out of the country. Deutsche Bank has also been mentioned frequently in the context of providing president Trump with loans for his various business ventures when few other banks were willing to lend to the now-US president.

Following the news, Deutsche Bank shares – which recently were lifted by news the largest German lender was looking to convert into a holding company in order to make itself easier to sell – dropped by 1%, but quickly recovered.

“We are in agreement with the BaFin that we have to improve these processes in the corporate and investment bank further,” Deutsche Bank said in response. “The bank will work together with the BaFin and the special representative KPMG to fulfill the regulatory requirements as soon as possible and within the given time frame.”

(BBG) A New CEO Plans Big Cuts to Mend Deutsche Bank

(BBG) Christian Sewing knows how to bring down expenses, but some say he lacks a grand vision.

As chief of Deutsche Bank AG’s retail division, Christian Sewing earned a reputation as an unapologetic cost-cutter who closed hundreds of branches, reduced staff by 7 percent—3,100 positions—over two years, and sold operations in Poland and Portugal. Today, as the company’s chief executive officer, he’s following a similar playbook. But there’s far more at stake as he faces restive shareholders dismayed by more than $10 billion in losses over the last three years.

Since April, when he was appointed CEO of the battered bank, Sewing has cut an additional 1,700 jobs, told bankers they can no longer buy first-class train tickets, eliminated daily office fruit bowls, and is planning to shrink the New York office 30 percent and move away from Wall Street. It’s part of a pledge Sewing made to trim overhead at least 8 percent by 2019. “We’ll have to make progress on costs,” he said at an August banking conference in Frankfurt. “It’s about what we can control ourselves: making the business profitable.

Sewing’s hardest task will be convincing investors and employees that he can break out of the bank’s cycle of serial disappointments. Revenue has fallen 21 percent in the last two years and is on track to drop again in 2018, to its lowest level in a decade. The investment bank is losing market share, the asset management division has been unable to stem outflows, and the stock has plunged to near-record lows since Sewing took over. The CEO has acknowledged that he has little more than a year to mend the bank’s shattered credibility. “If Sewing next year says they’ll continue to miss targets, that would be a big problem,” says Daniel Regli, an analyst with brokerage MainFirst.

There are persistent rumors that Deutsche Bank is considering a merger as a way out, most likely a tieupwith crosstown rival Commerzbank AG. But at a strategy conclave in Hamburg on Sept. 14-15, the supervisory board and top managers examined potential combinations with partners in Germany and abroad and decided the time isn’t right for such a deal. Sewing has told people around him that the company must first better integrate Postbank, the financial arm of the country’s postal service that Deutsche Bank bought in 2010 but never managed to bring under one roof with its own operations.

The new CEO contrasts sharply with his predecessors John Cryan and Anshu Jain, Brits who joined Deutsche Bank after rising to executive roles at rival investment banks. Sewing is a German who’s spent almost his entire career at the company, starting as a trainee at a branch in his hometown of Bielefeld and climbing the ladder in Frankfurt and abroad. He earned recognition from regulators for his work leading Deutsche Bank’s investigation into its role in allowing suspicious money transfers out of Russia—for which the bank was fined almost $700 million last year. In 2010 he joined senior management as chief credit officer, and he’s since served as deputy chief risk officer and audit boss.

Sewing commutes home most weekends to see his wife and four children near Bielefeld, a four-hour drive north of Frankfurt headquarters, and his deep roots in Germany have helped him cultivate strong ties with the country’s economic and political elite. He can be seen quaffing beers with bigwigs from Germany’s blue chip companies and has shared the stage with Finance Minister Olaf Scholz at industry conferences. “Sewing, a homegrown talent from the very beginning, represents the classic bank business in the European tradition,” says Michael Seufert, an analyst with NordLB.

Befitting the first German to run the bank as sole CEO in more than a decade, Sewing aims to shift away from Asia and the U.S., instead emphasizing Europe and especially Germany. The question is whether he has the charisma and vision to lead a sprawling operation with 100,000 employees spread across five continents. While his track record suggests that Sewing is good at increasing efficiency, his plan consists mainly of cutting expenses.

Deutsche Bank has gone through three other turnaround plans since 2015, and insiders fret that Sewing’s retrenchment will end up eliminating many global outposts. An investor who recently talked to Sewing said the CEO failed to adequately answer any questions that extended beyond his 2019 targets. And one top manager says Sewing rejected an argument that job cuts posed a risk to the unit’s effectiveness. “I don’t see Sewing as a visionary,” says Michael Hünseler, a fund manager at Assenagon Asset Management. “He’s a rational, adaptable CEO, but he doesn’t seem to like to make big bets.”

In April he ordered a review of the investment bank—meaning job cuts—which unsettled international clients and employees alike. Indeed, most of the positions eliminated in the second quarter were at the investment bank, and he’s dismantled teams doing equity research or strategic advisory work in Brazil, Dubai, and Japan. With many top staffers jumping ship, Sewing has sought to quash uncertainty by traveling the world—since becoming CEO he’s made five trips to the U.S. and three to Asia—to underscore the bank’s commitment to a global footprint. And he’s instituted get-togethers the company calls the “Hour of Truth,” where workers from all levels are encouraged to ask him questions.

His aim is to restore credibility and a sense of pride to an institution that’s become a symbol of failed expectations. Having witnessed the brutal defenestration of Cryan—whose tenure was marked by conflict with Supervisory Board Chairman Paul Achleitner and, ultimately, a failure to cut expenses—Sewing is trying to avoid what he’s called the bank’s “pattern of negative surprises” in fourth-quarter costs. “We’ve gone through a difficult phase,” Sewing said at the Frankfurt conference. “We need to reawaken our pride.” —With Nicholas Comfort

(Reuters) Deutsche to shift more assets to Frankfurt, ringfence UK operations after Brexit: source

(Reuters) Deutsche Bank (DBKGn.DE) is considering shifting large volumes of assets from London to Frankfurt after the UK’s planned exit from the European Union next year to meet demands from European regulators, a person close to the matter said on Sunday.

Deutsche will also transform its UK arm into a ringfenced subsidiary after Brexit and reduce the size and complexity of its British operations, the source said.

The Financial Times reported earlier on Sunday, citing people familiar with the thinking of the bank’s executives, that Deutsche could eventually move about three-quarters of its estimated 600 billion euros in capital back from London to its headquarters.

No final decision has been made on the size of the asset move, it added.

Deutsche Bank and the ECB declined to comment.

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According to the Financial Times, one option being considered is to shrink the size of the London balance sheet so it ends up smaller than its U.S. holding company, which has roughly $145 billion of assets.

Any large-scale transfer of assets would not happen overnight, but would take between three and five years or even longer, the paper reported, adding that setting up a ringfenced UK subsidiary would potentially cost Deutsche hundreds of millions of euros.

(Reuters) Exclusive: Deutsche Bank weighs overhaul that could make deals easier – sources

(Reuters) Deutsche Bank is considering an overhaul to loosen the bond between its retail and investment banks, according to three people with knowledge of the matter, a move that could make it easier to merge some or all of the group with rivals.

The German lender is examining creating a holding company structure, a step that would give it more flexibility to strike merger deals, as it seeks to regain its footing following years of heavy losses and multi-billion-dollar penalties.

The possibility is likely to be discussed at a meeting of management later this week in Hamburg, other people familiar with the matter said, as the bank’s new chief executive, Christian Sewing, sets a new course for the struggling lender.

“I gravitate to the holding structure,” said one of the people with direct knowledge of the debate.

Deutsche Bank declined to comment.

The structure, which would act as an umbrella over separate entities including its investment and retail banks, would see Deutsche following the example of U.S. rivals.

No decision, however, has yet been made, and while such an arrangement would bring potential advantages for the group, a number of questions about how it would work in practice, such as its tax impact, remain unanswered.

The debate to switch to the new structure comes at a time of upheaval for Deutsche.

Sewing was propelled to the helm earlier this year to reverse three consecutive years of losses and a falling share price. He has been on a mission to slim down the bank’s international operations and promote steadier income streams in its home market of Germany.

As Deutsche’s fortunes have declined, speculation of a possible merger has risen. Deutsche’s cross-town rival Commerzbank is mentioned as the most likely candidate.

The German government, which owns a 15 percent stake in Commerzbank, has recently voiced the need for a strong German banking industry to support companies in the nation’s export-led economy. That has stoked speculation it could engineer a merger.

Executives at both banks have privately talked down the chances of a merger anytime soon, saying the banks would need to overhaul their operations and restore profitability first.

While the holding structure could simplify potential mergers and acquisitions, giving flexibility in integrating a rival business, it has other benefits.

One of the people said it could shore up confidence in the investment bank by possibly making it cheaper to obtain finance if the holding company were to relieve it of some of the financial burden.

Regulators in the United States, UK and Switzerland also tend to favor the bank holding company structure, in part because it can help with the winding up of a troubled bank.

There has been a push since the financial crash to make banks easier to break up, lowering the risk that the problems of a troubled investment bank, for instance, could spill over onto ordinary savers.

About 90 percent of U.S. banks, including Citigroup and JPMorgan Chase, operate as holding companies, according to the U.S. Federal Reserve.

(Reuters) Deutsche Bank, Commerzbank increasingly open to merger: Spiegel

(Reuters) Executives of Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE) are increasingly open to the idea of a merger of Germany’s two largest banks, magazine Der Spiegel reported on Tuesday.

It cited one person as saying that Commerzbank Chief Executive Martin Zielke “would rather do it today than tomorrow”, but that new Deutsche Bank CEO Christian Sewing had said internally a merger was not on the agenda in the next 18 months.

It added that Finance Minister Olaf Scholz could also imagine a deal to combine the two lenders.

“We do not comment on banks’ strategic decisions,” a spokeswoman for the German Finance Ministry said. The German government still owns a 15 percent stake in Commerzbank after bailing it out during the financial crisis.

Deutsche Bank and Commerzbank both declined to comment.

The news sent shares in Commerzbank as much as 4 percent higher to a four-week high at 8.74 euros.

Shares in Deutsche Bank were 0.8 percent higher at 9.66 euros by 1418 GMT, outperforming a 0.5 percent slide by Germany’s blue-chip DAX index .GDAXI.

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Deutsche Bank, which has bought German peers Postbank and Sal. Oppenheim over the last decade, also held talks with Commerzbank over a potential merger in 2016.

At the time, the two lenders shelved the project as they wanted to complete their restructuring efforts before taking any steps in the direction of a merger.

(BBG) Deutsche Bank Top Investor HNA Is Said to Plan Exiting Stake

(BBG) Deutsche Bank AG’s top investor, China’s HNA Group Co., plans to exit its entire stake in Germany’s largest lender as it reverses a debt-fueled acquisition spree, according to people briefed on the matter.

The cash-strapped conglomerate, which most recently still held almost 8 percent of the voting rights, is selling the investment after China demanded that it focus on its airline business, said the people, asking not to be identified in discussing non-public information. It’s not clear how HNA would sell the stake, which it controls through a series of complex derivatives.

Officials for HNA and Deutsche Bank declined to comment. The Wall Street Journal reported earlier Friday that the Chinese government had told HNA to exit the stake, citing unidentified people familiar with the matter.

A disposal would add to pressure on Deutsche Bank, whose shares have slumped amid several unsuccessful turnaround efforts, and could act as a catalyst amid speculation that it may need to merge with another lender in the long run. For HNA, the sale would mark the unwinding of one of the most high-profile investments made during a multi-year acquisition spree that cost the company tens of billions of dollars.

Deutsche Bank shares fell 2.1 percent at 12:25 p.m. in Frankfurt trading, bringing losses this year to 40 percent.

Long-Term Hedge

HNA held as much as 9.9 percent in Deutsche Bank in 2017 through a combination of outright holdings and options, but it’s been reducing the investment and replacing actual shares with financial instruments. Most of the stake is now controlled through derivatives that limit HNA’s losses, meaning the disposal may not affect the share price as much.

HNA previously said it was committed to the stake, but the government instructed it to focus on its main business of travel and stop diversifying through acquisitions when China’s top leaders earlier this year agreed to help HNA raise funds, people familiar with the matter have said. This year alone, the company has sold more than $17 billion in assets, including its holdings in Hilton Worldwide Inc.

Read more: A QuickTake on HNA’s struggles

HNA plans to gradually exit its Deutsche Bank stake over the next 18 months, the Wall Street Journal said. The company is also in talks to sell Ingram Micro Inc. and Swissport International Ltd., the newspaper said, citing people familiar with the matter.

HNA is still burdened by one of the largest interest expenses in the world. In July, it was roiled by the sudden death of co-Chairman Wang Jian, a tragedy that threw a wrench at its normalization plans as Wang was said to be the mastermind behind the purchase of many of the assets that are now being sold.

At Deutsche Bank, HNA’s exit would leave a void that could attract other strategic buyers. Cerberus Capital, the U.S. buyout firm run by Stephen Feinberg, is already a top investor in Deutsche Bank and also holds a large stake in rival Commerzbank AG. That has prompted speculation in the past that it may seek to combine the two.

Deutsche Bank Chief Executive Officer Christian Sewing in April unveiled the bank’s fourth turnaround plan in three years. He aims to cut around 4,000 jobs this year in an effort to slash costs and focus on the bank’s European clients.

HNA has long been a controversial shareholder for the lender. Former CEO John Cryan initially refused to meet with its executives, people familiar said at the time. He eventually relented when the issue fueled tensions with Deutsche Bank Chairman Paul Achleitner, who was personally involved in wooing the investor.

(BBG) Deutsche Bank Is Said to Be Removed From Euro Stoxx 50 Index

(BBG) Years of losses and strategic drift have cost Deutsche Bank AG a seat among Europe’s elite companies.

Germany’s largest lender has dropped out of the Euro Stoxx 50 index for the first time since its inception in 1998, according to documents seen by Bloomberg. The index, compiled by Deutsche Boerse AG, provides a cross-section of the biggest and most liquid stocks in the euro area.

A loss of confidence in the lender’s ability to restore profitability after a string of scandals and fines has caused a sharp decline in Deutsche Bank’s market value. It has lost money for the last three years, and a growing number of analysts are voicing doubts about Chief Executive Officer Christian Sewing’s latest turnaround plan.

Deutsche Bank’s shares peaked in 2007 and have lost some 90 percent since then. They are down over 37 percent this year alone, but were up 0.7 percent by 11.00 a.m. in Frankfurt on Tuesday.

Benchmark Factor

Inclusion in widely-tracked indexes is becoming more important for companies in a world increasingly dominated by ‘‘passive’’ investment funds. Such funds accounted for 30 percent of all Europe-focused equity investment funds at the end of 2017, according to the Bank for International Settlements. The Euro Stoxx 50 alone is tracked by exchange-traded funds with assets of more than 40 billion euros ($46 billion), data compiled by Bloomberg show. Expulsion from the index will force passive investors to sell as they realign portfolios to include the index’s new constituents.

Stocks dropping out of a benchmark index on average have underperformed the respective gauge by 5.6 percent during the month before the announcement and another 3 percent between the announcement and the actual index change, data collected by LBBW analyst Uwe Streich show. Streich said the main problem for the bank was “reputational.”

“Exiting the Euro Stoxx 50 seems to contradict the bank’s self-image as one of the euro zone’s biggest banks,” he said. “Re-entry will be very difficult.”

The index change is set to take effect on September 24.

In a statement that didn’t directly acknowledge its exclusion, Deutsche Bank said: “Management is firmly committed to executing its announced strategy to improve our bank’s profitability. We expect that this will support the valuation of Deutsche Bank by the market, and therefore increase market capitalization.”

The bank said its commitment and strategy are “unaffected by the announcement of the index provider.”

A Deutsche Boerse spokesman couldn’t immediately comment.

Germany’s second-largest listed lender, Commerzbank AG, risks suffering a similar fate by falling out of the DAX Index, which includes the country’s largest and most liquid stocks. Deutsche Boerse is slated to announce the new composition of the DAX on Wednesday after the market’s close.

The two potential index exits “tell the story of how far behind the curve German banks are,” Andreas Meyer, a portfolio manager at Hamburg-based Aramea Asset Management AG, told Bloomberg in August. “While other European banks keep growing, Germany’s banks are occupied with themselves, unaware of how the competition is attacking them on their home turf.”