Deutsche Bank Seen ‘Fine-Tuning’ Goals as Headwinds Increase

(Bloomberg) -- Deutsche Bank AG Chief Executive Officer Christian Sewing addresses shareholders on Tuesday, five months into a historic restructuring that so far has failed to arrest a long decline in revenue.

Sewing, who is scheduled to speak at the bank’s first investor day in four years, can point to success in selling down unwanted assets and reducing costs. But investors are likely to press him on how he wants to meet mid-term targets and what he’s doing to offset headwinds. Plans for the once mighty fixed-income unit may also feature prominently.

“We expect only fine-tuning to targets, acknowledging a more difficult outlook” for revenue, Credit Suisse Group AG analysts led by Jon Peace wrote in a note on Thursday. The bank’s profitability target could become more sensitive to the economic and market environment, the analysts wrote.

What’s the biggest challenge?

Investors are concerned that Sewing will struggle to reverse a protracted decline in revenue, especially from trading fixed-income securities. The bank has already had to walk back its revenue goal, in part because its assumptions about interest rates and the economy were too optimistic. Third-quarter earnings showed all but one of the businesses Sewing is keeping continued to shrink.

Sewing had initially pledged to lift revenue in the core bank to 25 billion euros ($27.7 billion) by 2022, equal to an annual growth rate of 2%. The bank has since softened that goal to between 24 billion euros and 25 billion euros.

“We fear revenue attrition will be worse than the company expects,” Citigroup Inc. analysts led by Andrew Coombs wrote in recent note. A capital increase by the bank can’t be ruled for as long as it hasn’t provided estimates of the impact from new capital requirements, the analysts wrote.

What’s going to happen to the investment bank?

Deutsche Bank’s investment banking heads -- Mark Fedorcik for the business of advising companies on deals and raising money, and Ram Nayak for fixed-income trading -- are likely to tell investors that the actions they’re taking will eventually stem the unit’s long decline. The lender has highlighted its leading role on various initial public offerings since the strategy announcement as a way to show it can keep market share despite the restructuring.

Revenue from deal advisory rose last quarter, but it’s been contracting in other parts and overall in the division. Analysts don’t predict this will change anytime soon. The bank has also been debating how much to cut back the business of trading securities linked to interest rates.

What will the bank say about efforts to grow?

The corporate bank under Stefan Hoops is central to Sewing’s plan for growing the lender. Among other things, the division will discuss a project called contextual banking that will enable companies to finance certain assets on a pay-per-use basis, the unit’s digital head, Thomas Nielsen, said at a conference on Wednesday.

The retail unit now, known as Private Bank, will likely highlight attempts to lift prices for services, said people familiar with the matter. The bank has recently stepped up its effort to offset the margin pressure from negative interest rates, partly by charging clients for large deposits or introducing fees on some basic services such as checking accounts that used to be free.

The division, led by President Karl von Rohr, may also announce a decision to dissolve the separate legal structure around its German unit, the people said, asking not to be identified discussing private information. The plan could save the bank more than 100 million euros in annual costs, people briefed on the matter have said previously.

What’s it done to shrink?

One achievement Sewing can tout is the bank’s progress on ridding itself of unwanted assets since it moved them into a wind-down unit, led by Ashley Wilson and Louise Kitchen. The lender has begun to transfer the business that services hedge funds to BNP Paribas SA and sold various portfolios of assets including equity derivatives and emerging-market debt, people familiar with the matter have said.

At the same time, some analysts have expressed concern at the high losses the wind-down unit has been incurring. Analysts surveyed by the bank expect the division’s pretax loss to hit 3.2 billion euros this year and 2.2 billion euros in 2020.

Deutsche Bank has also continued to cut costs and said previously that it’s on track to meet its target to keep costs adjusted for restructuring expenses below 21.5 billion euros this year, and below 17 billion euros in 2022. Analysts doubt Sewing can reach the latter goal.

What’s in store for the bank’s asset manager DWS?

The bank’s asset management arm DWS, which has been publicly traded since early 2018, will hold a separate investor event on the same day. Like the CEO of his parent company, DWS chief Asoka Woehrmann has highlighted cost savings and a stronger focus on sustainability products as a way to lift profit.

Sewing has said he wants to turn DWS into a top 10 asset manager globally, an ambitious goal. Woehrmann has said he will need to take over another large company to achieve that target. Deutsche Bank earlier this year held informal talks with UBS Group AG about merging both banks’ asset management units, but those discussions fell apart.

--With assistance from Nicholas Comfort.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

©2019 Bloomberg L.P.