By Jenny Strasburg
Deutsche Bank AG executives have considered plans in recent
weeks to eliminate close to 10,000 jobs, or about one in 10
employees, as part of moves to accelerate cost-cutting, according
to people familiar with internal bank discussions.
The latest plan, with cuts that likely would extend into 2019,
follows months of thorny debate over how fast and deep job losses
should be at the beleaguered German lender. The process has divided
senior executives and left investors unconvinced.
The bank's shares have fallen by nearly a third this year and
are at their lowest since a crisis of confidence hit the bank in
late 2016.
High-level clashes over staffing and budgets and conflicting
opinions from outside investors and bank executives reveal the
depth of Deutsche Bank's continuing struggles.
The lender's supervisory board and senior executives will
confront investors Thursday in Frankfurt at its annual shareholder
meeting. They will face a proposal to break up the company and
probing questions about last month's chief executive handoff and
the tough choices the lender has to make.
It has been a messy year for Deutsche Bank. The April 8 ouster
of CEO John Cryan in the middle of his management contract shook
employees and appeared botched to some clients and investors.
Less than two weeks earlier, Mr. Cryan told Deutsche Bank's
97,100 employees in a public memo that he was "absolutely
committed" to the job, hoping to draw support from the supervisory
board, people involved in internal discussions said.
Instead, the board ousted the Briton, replacing him with a
German Deutsche Bank lifer, Christian Sewing.
Ahead of the April 26 first-quarter earnings call, Deutsche's
efforts to get a grip on head count sparked a last-minute debate.
Executives talked about announcing plans to cut 5,000 jobs.
However, some worried that number would underwhelm investors,
according to people briefed on the private discussions, and the
bank elected not to cite a number.
Late last year, battles over 2018 budgeting were contentious,
leaving executives frustrated, people close to the process say. One
internal exercise in November required business heads to propose
their own head counts for 2018, which would be considered alongside
the bank's overall cost targets.
After repeatedly missing targets, executives told investors last
year they would do better. They aimed to end 2018 with fewer than
95,000 employees, according to internal figures discussed with The
Wall Street Journal.
However, business heads in November were actually proposing to
expand the overall staff--adding around 5,000 more than the new
target--to almost 100,000 employees companywide. At the time,
investment-banking co-heads Garth Ritchie and Marcus Schenck--known
to some colleagues as "Garcus"--wanted to add around 700 employees
from their most recent head count, the internal proposals show.
Eventually, the companywide year-end 2018 target was lowered to
around 95,600 employees. That was the base projection before last
month's CEO change.
A similar impasse over bonus payments went on for two months,
becoming a face-off over EUR200 million ($236 million), a fraction
of the eventual bonus pool. When the supervisory board conducted
year-end performance reviews in December, some management-board
members were barely talking to each other, people close to the bank
say.
New CEO Christian Sewing, whose background is mainly in audit,
risk control and retail banking, has vowed to bring faster
decision-making and cost discipline to the job.
Doubts about the lender's strategy haven't eased, including
about its ability to earn enough in investment banking and trading
while cutting enough costs to make up for a dearth of profits
elsewhere.
Deutsche Bank's challenges start at home, where retail banking
is a low-margin business.
Globally, once-juicy profit sources like bond trading and
complex lending have been whittled by regulation and competition.
Unlike other big European lenders, Deutsche Bank lacks a powerhouse
private bank or credit-card business.
Ahead of Thursday's shareholder meeting, Deutsche Bank
executives dismissed the shareholder-led breakup proposal as
strategically flawed and too complex to work.
The bank's influential chairman, Paul Achleitner, is under fire
for overseeing years of executive turnover and poor performance.
Privately, the Austrian has defended his role in the CEO handoff,
which included unsuccessful efforts to court outside candidates for
Mr. Cryan's job.
In October, a frustrated Mr. Achleitner spoke with Jean Pierre
Mustier, the French chief executive of Italy's UniCredit SpA,
sounding him out about joining Deutsche Bank, people briefed on the
conversation said.
In that conversation and others like it, outside executives Mr.
Achleitner tapped for input suggested Deutsche Bank needed to
swallow a lot more pain than it seemed willing to, fire far more
people than it had, clean up long-dated derivatives positions on
its balance sheet and possibly sell other assets. And the bank
eventually would need billions in fresh capital to handle the kind
of major restructuring that was necessary, according to the
people.
Mr. Mustier said he didn't want to leave UniCredit, where he was
focused on big turnaround promises he made to investors while
raising EUR13 billion last year.
Mr. Achleitner's view was that Deutsche Bank had plenty of
capital and the right strategy, but the market didn't understand
its progress and prospects. He said the bank needed a new leader
with energy and finesse.
Advisers to investment vehicles controlled by the Qatari royal
family, a top shareholder, repeatedly expressed impatience with
Deutsche Bank's market-share declines and pushed for a management
change, people familiar with the matter said.
Hans-Christoph Hirt, head of Hermès EOS, a U.K.-based adviser to
Deutsche Bank shareholders, said Mr. Sewing was a "credible
candidate." However, the high level of executive and
supervisory-board turnover at the bank suggests it lacks an
effective strategy, according to Hermès.
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
May 23, 2018 10:10 ET (14:10 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.