Deutsche Bank to Raise Investment Bank Outlook, Cut Others

(Bloomberg) -- Deutsche Bank AG will probably raise the outlook for the investment bank next week while cutting it for at least one other unit, after a year-long market rally left Chief Executive Officer Christian Sewing more dependent than ever on the fixed-income trading business.

Sewing is likely to use the investor day on Dec. 9 to signal that the securities unit, which includes debt trading, is on track to exceed revenue expectations for 2022, according to people familiar with the matter. At the same time, he’s set to downgrade at least one of the other businesses -- which include retail banking, corporate banking and asset management -- said the people, asking for anonymity to discuss the internal plans.

A spokesman for Deutsche Bank declined to comment.

The shifting expectations highlight just how much Sewing’s turnaround plan has come to depend on a trading business he set out to cut when he took over as CEO in early 2018. It would be the second time since he presented his initial plans in the summer of last year that he places a bigger emphasis on the investment bank, led by Mark Fedorcik and Ram Nayak, while downgrading other businesses as negative interest rates weigh on income from lending.

Germany’s largest lender reported a 47% jump in debt trading in the third quarter, beating most Wall Street peers. The unit -- the only trading arm after Sewing exited equities -- is now a bigger revenue contributor than at any time since at least 2012, when former investment bank head Anshu Jain took over as co-CEO. The investment bank now accounts for about 40% of the top line.

Deutsche Bank shares rose as much as 1.9% and traded 1.7% higher on the news at 2:47 p.m. in Frankfurt. The stock is up 39% this year, though it remains about 90% below its peak before the financial crisis.

Some other units may present tougher cost-cutting targets at the investor day to ensure they can still meet profitability goals, the people said. Those units are also expected to signal new growth opportunities.

The bank has recently highlighted potential cost savings through the combination of two previously separate units, wealth management and its international retail operations, under the command of Claudio de Sanctis. It has also recruited several high-profile payments executives for the corporate bank under Stefan Hoops.

Deutsche Bank last year unveiled its biggest restructuring in two decades, exiting equities trading and trimming the larger fixed-income operation. Sewing, a former corporate banker, had initially planned more aggressive cuts to trading but pinned his hopes on the business when it became clear that negative interest rates would weigh on its other operations.

So far this year, the investment bank has made 7.4 billion euros ($9 billion) in revenue, more than in the entirety of 2019 and equal to about 40% of Deutsche Bank’s total revenue. That compares with about 30% when Sewing took over in 2018. The corporate bank, which Sewing broke out as a separate business as part of his revamp, made 3.9 billion euros this year, slightly less than in the same period last year.

Sewing has said bank-specific factors have played a role in the trading unit’s boom. Deutsche Bank has won back many former clients while fewer existing ones than expected left after it exited equities trading, he has said. Chief Financial Officer James von Moltke has also highlighted the positive effect of falling prices for credit default swaps on Deutsche Bank.

The big question now is how long the trading boom can last and how big of a slice Deutsche Bank can control. The German lender has said it expects to maintain its market share even as it sees overall market activity tapering off next year.

©2020 Bloomberg L.P.