President of Deutsche Bank rejects overhaul of investment bank strategy

Deutsche Bank's investment bank does not need a fundamental strategic overhaul following the collapse of merger talks with rival Commerzbank, according to the chairman of the German lender.

Paul Achleitner, chairman of the supervisory board of Deutsche, which was seen in Frankfurt as a supporter of the merger of Commerzbank, defended the current recovery efforts of the investment bank, which have been losing for two consecutive quarters.

"Every leader needs to constantly adapt to a changing market environment. . . But in this regard, we are not talking about strategy, we are talking about execution, he told the Financial Times in an interview. "Especially in a business like the capital markets, which is so volatile and evolving rapidly, permanent adjustments will be made."

Asked about the need for a more fundamental change in the investment bank, Mr. Achleitner replied, "No". However, he stated that this was his personal point of view and that the management board was responsible for the lender's strategy.

Major investors and regulators have been asking Deutsche Bank for months to step up its efforts to turn the bank around.

Following his appointment last April, Chief Executive Officer Christian Sewing imposed a restructuring of Deutsche's group and investment, reducing his balance sheet by 12% and laying off 8% of his employees, particularly in equities. US.

However, in the first quarter of 2019, revenues continued to decline faster than costs, while trading revenues fell again by 19%.

JPMorgan analyst, Kian Abouhossein, estimates that Deutsche US stock operations spend between 200 and 300 million euros a year before taxes. "They have no choice but to tackle some underperforming assets," he told the Financial Times.

During a telephone conversation with analysts on Friday following the failure of merger negotiations with Commerzbank, Sewing said he would not be "attracted to speculation about options strategic ".

He said the starting point for his management team was that Deutsche "will remain a world-class financial services institution" and has a significant presence in the United States and Asia. Mr. Achleitner supports this approach

"We have just come out of a quarter when the team has once again delivered the ball. Of course, you can say: it could have been more. But it was already four times higher than expected by analysts, "he said, referring to the quarterly net profit of 201 million euros compared to 55 million expected by analysts.

"If you are in such a situation, why should you suddenly put everything flat?"

Mr. Achleitner disputed the view shared by some analysts that Deutsche had started the merger negotiations after making sure that he could not solve his problems on his own.

"The print may be offensive, but it's inaccurate," he said, saying he personally did not want the contract to be evaluated.

"The purpose of this business was to go from opinions to facts and make an evidence-based decision. This has been accepted by everyone. "

The main stumbling block that led to the failure of the negotiations was the unattractive returns expected compared to the amount of capital required, Mr. Achleitner said.

In late March, the FT said Deutsche may have to raise up to 10 billion euros of additional capital to finance a deal. Mr. Achleitner called this figure "excessive", but said that the package as a whole was not convincing enough to be presented to the bank's shareholders.

Since 2010, Deutsche has already raised a total of 30 billion euros in four capital increases.

According to the former merger and acquisition banker at Goldman Sachs, the failure of negotiations with Commerzbank would put an end to the merger of the two German listed lenders. Although there was no formal vote on the agreement, the decision was approved by all members of Deutsche's supervisory and management boards.

Mr Achleitner added that Deutsche Bank was not outdone by the prospect of the acquisition of Commerzbank by a foreign rival. He added that the likely scenarios of a resumption of his local rival by a foreign competitor were "part of the considerations that led to the decision" to abandon negotiations on a merger.

When asked whether he feared that such a move would weaken Deutsche on his home market, Mr Achleitner replied "no". The FT has already announced that Italy UniCredit was ready to bid on Commerzbank in case of default of the national merger. The Dutch lender ING has also expressed interest in a merger.

Mr. Achleitner acknowledged that the appetite of his foreign rivals for Commerzbank had been an incentive to enter the merger negotiations. Negotiations began in mid-March and were supported by the German government, which holds a 15% stake in Commerzbank.

"Imagine the kind of conversation we would have if the newspaper announced Thursday that someone else had acquired Commerzbank [with Deutsche Bank staying on the sidelines]Said Mr Achleitner, suggesting that the lender would then have been harshly criticized for being caught "off guard".