Deutsche Bank’s new CEO takes sober look at ‘ugly’ investment bank

Christian Sewing’s appointment as chief executive and the abrupt departure of his predecessor John Cryan holds out the prospect of radical change at Germany’s flagship lender. (Shutterstock)
Updated 09 April 2018
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Deutsche Bank’s new CEO takes sober look at ‘ugly’ investment bank

  • Deutsche is already in the middle of a global review of the investment bank, known internally as Project Colombo.
  • Christian Sewing warned of tough decisions ahead: “The time pressure is on and the expectations are high from all sides.”
FRANKFURT: Deutsche Bank’s new chief executive faces the same strategic problem that has long preoccupied its top management — whether or not to override the rainmakers and big earners at its powerful investment bank to shrink that business.
Christian Sewing’s appointment as chief executive on Sunday and the abrupt departure of his predecessor John Cryan holds out the prospect of radical change at Germany’s flagship lender, which has been slower than rivals to reform after the financial crash.
Sewing expects to complete an initial review of Deutsche’s investment bank within weeks, according to a person with knowledge of the matter, but any overhaul he launches is likely to take much longer.
“They’ve had to come around and painfully admit their investment banking baby is quite ugly,” said Octavio Marenzi, CEO of consultancy Opimas. “That’s an emotional issue for them.”
The debate over the investment bank’s future heated up over the past two weeks as Deutsche Bank Chairman Paul Achleitner intensified a search for a CEO to replace Cryan, the Briton he had installed less than three years ago to clean up the bank.
Deutsche is already in the middle of a global review of the investment bank, known internally as Project Colombo, to determine the way forward as revenues shrink and clients and staff leave.
The appointment of Sewing — with a background in retail banking, auditing and risk — along with the resignation of one of Deutsche’s top investment bankers, Marcus Schenck, suggests a shift away from the investment bank, analysts and investors say.
The 47-year-old CEO warned staff on Monday of tough decisions ahead. “The time pressure is on and the expectations are high from all sides,” Sewing wrote in a letter to staff.
But it will be hard to reverse the investment bank’s drive to compete with Wall Street that dates back to the 1990s. Employees say it resulted in the creation of fiefdoms and rivalries that proved difficult for any CEO to control.
The investment bank debate is tricky for Sewing because he is not an investment banker. He joined Deutsche out of school at age 19 at a branch in Bielefeld in north-west of Germany. He was crowned CEO in a hastily arranged board call late on Sunday.
The bank’s major shareholders and top managers are also divided over how to proceed, with some favoring further investment in investment banking and others retrenchment.
Some analysts have said that even modest exits from specific business areas could erode revenues at the investment bank, which generates just over half the group’s total.
The future of the investment bank is just one of many problems for Sewing, the third head of the bank in six years. He also has to tackle high costs, heavy losses and stiff competition in Germany’s crowded banking market.
Peter Nerby, who analyzes Deutsche for credit rating agency Moody’s, pointed to tough competition among numerous international banks, asking “whether there’s enough food for everyone.”
That view was echoed elsewhere. Hendrik Leber, a fund manager with Acatis, said Deutsche should focus on German companies overseas: “Without the investment bank, Deutsche Bank would be much more reliable and profitable.”
JPMorgan analysts said in a research note that Deutsche Bank should shrink its US investment banking business to create shareholder value.
Schenck, the investment bank co-head, had wanted to expand it, but Achleitner, in an interview with the the Frankfurter Allgemeine Zeitung on Monday said: “The bank didn’t currently support that effort.”
Sewing has hinted he is open to a smaller investment bank in his staff memo on Monday, saying “we’ll have to further adapt our revenue, cost and capital structure.”
Some in Germany would welcome a return to Deutche Bank’s roots — it was founded during the Industrial Revolution to finance German firms’ expansion overseas.
“He has a huge task ahead of him that has big significance for Germany and our export orientated industry,” Carsten Schneider, a prominent lawmaker from Germany’s governing Social Democrats, told Reuters.


Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

Updated 23 March 2019
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Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

  • Firms under pressure to explain how greener laws will hit business models

PARIS: The five largest publicly listed oil and gas majors have spent $1 billion since the 2015 Paris climate deal on public relations or lobbying that is “overwhelmingly in conflict” with the landmark accord’s goals, a watchdog said Friday.
Despite outwardly committing to support the Paris agreement and its aim to limit global temperature rises, ExxonMobil, Shell, Chevron, BP and Total spend a total of $200 million a year on efforts “to operate and expand fossil fuel operations,” according to InfluenceMap, a pro-transparency monitor.
Two of the companies — Shell and Chevron — said they rejected the watchdog’s findings.
“The fossil fuel sector has ramped up a quite strategic program of influencing the climate agenda,” InfluenceMap Executive Director Dylan Tanner told AFP.
“It’s a continuum of activity from their lobby trade groups attacking the details of regulations, controlling them all the way up, to controlling the way the media thinks about the oil majors and climate.”
The report comes as oil and gas giants are under increasing pressure from shareholders to come clean over how greener lawmaking will impact their business models.
As planet-warming greenhouse gas emissions hit their highest levels in human history in 2018, the five companies wracked up total profits of $55 billion.
At the same time, the International Panel on Climate Change — composed of the world’s leading climate scientists — issued a call for a radical drawdown in fossil fuel use in order to hit the 1.5C (2.7 Fahrenheit) cap laid out in the Paris accord.
InfluenceMap looked at accounts, lobbying registers and communications releases since 2015, and alleged a large gap between the climate commitments companies make and the action they take.

 

It said all five engaged in lobbying and “narrative capture” through direct contact with lawmakers and officials, spending millions on climate branding, and by employing trade associations to represent the sector’s interests in policy discussions.
“The research reveals a trend of carefully devised campaigns of positive messaging combined with negative policy lobbying on climate change,” it said.
It added that of the more than $110 billion the five had earmarked for capital investment in 2019, just $3.6bn was given over to low-carbon schemes.
The report came one day after the European Parliament was urged to strip ExxonMobil lobbyists of their access, after the US giant failed to attend a hearing where expert witnesses said the oil giant has knowingly misled the public over climate change.
“How can we accept that companies spending hundreds of millions on lobbying against the EU’s goal of reaching the Paris agreement are still granted privileged access to decision makers?” said Pascoe Sabido, Corporate Europe Observatory’s climate policy researcher, who was not involved in the InfluenceMap report.
The report said Exxon alone spent $56 million a year on “climate branding” and $41 million annually on lobbying efforts.
In 2017 the company’s shareholders voted to push it to disclose what tougher emissions policies in the wake of Paris would mean for its portfolio.
With the exception of France’s Total, each oil major had largely focused climate lobbying expenditure in the US, the report said.
Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.
AFP contacted all five oil and gas companies mentioned in the report for comment.
“We disagree with the assertion that Chevron has engaged in ‘climate-related branding and lobbying’ that is ‘overwhelmingly in conflict’ with the Paris Agreement,” said a Chevron spokesman.
“We are taking action to address potential climate change risks to our business and investing in technology and low carbon business opportunities that could reduce greenhouse gas emissions.”
A spokeswoman for Shell — which the report said spends $49 million annually on climate lobbying — said it “firmly rejected” the findings.
“We are very clear about our support for the Paris Agreement, and the steps that we are taking to help meet society’s needs for more and cleaner energy,” they told AFP.
BP, ExxonMobil and Total did not provide comment to AFP.

FACTOID

$ 28m

Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.