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)

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