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Deutsche needs more 'far-reaching' changes, says CEO, as shares fall again

Deutsche Bank AG has managed to lay a "rock-solid" foundation for its future restructuring but will need further "far-reaching" changes to complete it, CEO Christian Sewing said at the bank's annual general meeting May 23.

"It may not seem so at first glance but we achieved a lot in 2018," Sewing, who took over as CEO in April 2018, told shareholders. The goal was to stabilize the bank and set it up for future transformation and growth, which management achieved as Deutsche booked its first annual profit in four years, he said, despite contending with "strong headwinds" last year.

The German lender's Chairman Paul Achleitner said at the opening of the meeting that the executive board has achieved all three key objectives it had for 2018 — to cut costs, reduce headcount and maintain the bank's capital strength.

Management's confidence in Deutsche was not shared by the market as its stock hit a new low on May 23. As of 5:29 p.m., Deutsche shares traded at €6.45 on the Frankfurt exchange, down more than 2.5% on the prior-day close, having earlier reached an intraday low of €6.38 per share.

More cuts at i-bank

Sewing told shareholders he expects to hear criticism about the falling share price and he is aware it "seems contradictory" that despite achieving its goals, Deutsche's share price is at all-time lows. "No one is more disappointed with our stock market performance than I am," he said.

Nevertheless, delivering on the 2018 strategic goals was just the start of Deutsche's turnaround, as it will now focus on transformation and growth. Deutsche will need further "far-reaching" changes to achieve its medium-term goal of 10% return on tangible equity. Group post-tax first-quarter ROTE was 1.3%, compared to 0.9% in the fourth quarter of 2018.

Management is prepared to make "tough cutbacks," especially in the investment bank, to accelerate the transformation of the business, Sewing said. After he took office, Sewing ran a resizing of the corporate and investment banking unit, offloading business operations and reducing headcount. The investment bank still accounts for more than half of group revenues having booked some €3.33 billion out of the total €6.35 billion group net revenues in the first quarter.

A key part of the strategy under Sewing is to refocus Deutsche on profitable and growing businesses, and exiting noncore operations with no prospects to deliver sustainable profits in the future. Therefore, Deutsche has been focused on cutting back the share of market-sensitive activities in its business mix.

If Deutsche continues to focus on its strengths it has "great potential to increase revenues," Sewing said. Low revenues, chiefly dragged by the investment bank, are a key metric Deutsche has been repeatedly criticized for by investors and analysts.

Discontent

Investor discontent has grown since the beginning of the year amid the unsuccessful merger negotiations with domestic rival Commerzbank AG, more doubts about profitability, failing money-laundering controls, and the ongoing case related to U.S. President Trump's accounts with Deutsche.

This has culminated with shareholders asking for the dismissal of Achleitner who has led Deutsche's supervisory board since 2012. Shareholder Riebeck-Brauerei von 1862 AG has asked the AGM to vote on the chairman's dismissal before the end of his tenure in 2022.

At least three major investors in Deutsche have asked for Achleitner's dismissal, Reuters reported.