Pedestrians Pass by a Branch of Deutsche Bank, Germany (Photographer: Krisztian Bocsi/Bloomberg)

Deutsche Bank Gives Investor Cerberus Hands-On Role in Overhaul

(Bloomberg) -- While most Deutsche Bank AG investors must wait for news about the lender’s latest revamp effort, one of its largest shareholders may get a level of access that the rest don’t share.

Germany’s biggest bank has hired a unit of Cerberus Capital Management to advise the lender on how to hit Chief Executive Officer Christian Sewing’s profit targets. Cerberus Operations Advisory Company will help the bank drive down costs and squeeze out extra revenue, a person with knowledge of the matter told Bloomberg News, asking not to be identified discussing private information.

The arrangement means a big investor may gain a level of access and insight into the bank’s operations not enjoyed by other shareholders. Cerberus disclosed a stake of 3 percent in November last year and since then the stock has lost more than one third of its value. Cerberus’ contract foresees “industry-standard remuneration,” the person said.

Deutsche Bank’s shares rose briefly on the news but later gave up gains to trade 0.6 percent down at 9.72 euros as of 2:50 p.m.

“The acknowledged expertise of Cerberus Operations Advisory Company will support us on our path to once again create attractive returns for our shareholders and investors,” Deutsche Bank said in an emailed response to questions on Tuesday. It didn’t comment on any possible conflict of interest.

Investor Doubts

Deutsche Bank shares are trading near the record low they hit last month, after a tumultuous management reshuffle and plan to reduce its global presence failed to win over investors. The lender is cutting at least 7,000 jobs and paring back businesses in the U.S. and Asia after three attempts to restore profitability in recent years ended up eroding revenue.

Cerberus didn’t respond to calls and emails requesting comment. According to its website, COAC executives “are regularly deployed to provide practical assistance to help drive operational and strategic transformations.”

There was no indication from Deutsche Bank that Cerberus had been hired to advise on strategy. The COAC unit will work on ways to help the lender speed up its overhaul, the person said.

Cerberus owns a stake of 5 percent in Deutsche Bank’s smaller German rival Commerzbank AG. A combination of the two lenders has emerged as the preferred medium- to long-term strategic option among Deutsche Bank’s top echelons, Bloomberg reported last month. Speculation that Cerberus might try to engineer such a merger has bubbled ever since its holding in Deutsche Bank was disclosed in November.

Sewing Decision

The news of the advisory mandate was first reported Tuesday by the Wall Street Journal. Cerberus President Matt Zames, a former JPMorgan Chase & Co. executive, is leading the team working with Deutsche Bank, the newspaper reported, citing a Cerberus spokesman.

Both companies expect Cerberus to be restricted from buying or selling Deutsche Bank shares while it advises the lender, the Journal said, citing unidentified people familiar with the matter.

While talks with the Cerberus unit started under former Deutsche Bank CEO John Cryan, the decision to proceed was taken by Sewing, the person familiar with the matter said.

Sewing is seeking to strike a balance between scaling back where Deutsche Bank’s investment bank is struggling, while keeping key performers and reassuring clients of its continued commitment to serving their global needs. The lender’s corporate and investment banking unit accounted for 54 percent of group revenue last year -- down two percentage points from 2016 -- and its contribution will fall further to around 50 percent of group revenue by the end of 2021, according to bank presentations.

Sewing announced a restructuring of the corporate and investment bank less than two months into his new job and has since unveiled significant cuts to its equities and corporate finance units, vowing to reduce the number of the bank’s employees to significantly below 90,000 from the current level of about 97,000. Most of that will be completed this year, Sewing said. Several top investment bankers have left the firm in recent weeks.

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