Deutsche Bank set to replace CEO John Cryan with retail-bank chief

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Christian Sewing, member of the board of Germany's Deutsche Bank is pictured in Frankfurt, Germany, February 2, 2018. REUTERS/Ralph Orlowski (Reuters)

Deutsche Bank AG made a hasty weekend CEO switch that signalled a future as a smaller, less ambitious lender reined in by regulators and pressured by investors who lost patience with the bank's grim financial performance under Chief Executive Officer John Cryan.  Germany's biggest bank, struggling after a string of money-losing years, named as Mr. Cryan's replacement a German executive steeped in auditing, risk control and retail banking. Mr. Cryan will leave at the end of this month, Deutsche Bank said.  Christian Sewing has spent more than 25 of his 47 years at the Frankfurt-based lender, starting as an apprentice banker and rising to the management board three years ago. He has held senior risk and audit roles in London, Tokyo and Toronto but has a low profile outside of Germany.  The dismissal of Mr. Cryan, a former investment banker, and the elevation of Mr. Sewing struck investors and executives at other banks as moving Deutsche Bank closer to a potential merger with another European bank, possibly in Germany. Such a possibility has long been discussed. A smaller, more regionally focused Deutsche Bank could make a match-up more pragmatic, bankers and investors said. Deutsche Bank didn't immediately comment.  The CEO change, which is effective immediately and came after a Sunday evening conference call of the bank's supervisory board, also presages a lower-profile Deutsche Bank, say people close to the firm. The bank has been one of the few remaining in Europe with ambitions to compete globally against the U.S.'s trading and investment-banking powerhouses.  It has vast global trading operations and a huge presence in complex derivatives and fixed-income securities. But regulators at the European Central Bank, as well as in the U.S., have become wary of its size and its weakened financial position. The ECB declined to comment.  Investors and current and former employees expect Deutsche Bank to further curtail its trading operations, once the cash cow of the investment bank, in moves described by people close to the lender as driven partially by pressure from European and U.S. banking regulators.  Regulators have heard concerns about Deutsche Bank from other big banks that trade with it, according to people familiar with the matter. Among concerns voiced, the people say, is that although Deutsche Bank's capital cushion is stable after it raised billions of dollars in a share sale last year, a big market shock, unexpected legal fine or other crisis could set Deutsche Bank back to where it was in late 2016 when counterparties pulled away, fearing a capital crisis.  Other European banks, lagging behind stronger U.S. rivals in profitability and share performance, also feel pressures. But Deutsche Bank has had an outsize share of internal turmoil, exacerbated by a prolonged restructuring and an executive suite divided over matters including bonuses and technology spending.  Tensions were bad enough in recent weeks that supervisory-board members have been bracing for the possibility of multiple executive departures, according to people familiar with private board deliberations.  Since January 2016, Mr. Sewing has overseen Deutsche Bank's private and commercial-banking division, which includes the lender's network of German retail branches.  Mr. Cryan had been an investment banker and a finance chief at the Swiss bank UBS AG. His high-profile predecessor, Anshu Jain, was a consummate banker who rose to power during Deutsche Bank's go-go precrisis years of high-leverage trading and huge profits.  Last year, Mr. Sewing was named one of two co-presidents reporting to the CEO he now replaces. The other co-president, Marcus Schenck, is leaving the bank.  Mr. Cryan, a Briton brought into the CEO role in mid-2015, has two years remaining on his contract. He said two weeks ago in a memo to employees that he was "absolutely committed" to serving the bank. That was in response to media reports that Deutsche Bank's chairman, Paul Achleitner, was shopping outside the bank for replacement CEO candidates.  As recently as last week, both of Deutsche Bank's investment-banking co-heads were in discussions with the bank about potentially leaving, the Journal previously reported. One has decided to: Mr. Schenck, until recently considered a potential candidate to one day become CEO, is departing effective next month. He told the supervisory board before Easter that he intended to leave, Deutsche Bank said in its statement.  The other, Garth Ritchie, will now oversee the investment bank as its sole chief, Deutsche Bank said Sunday evening. He and another executive, Karl von Rohr, were named presidents, replacing Messrs. Sewing and Schenck in those positions.  Deutsche Bank has sent mixed messages to investors and employees over the past few months. Mr. Achleitner has faced unrest among big investors he courted who have become alarmed at Deutsche Bank's share-price declines, people close to the bank and investors say.  Mr. Achleitner said in a statement that Mr. Cryan played "a critical role" at the bank, but that "following a comprehensive analysis we came to the conclusion that we need a new execution dynamic in the leadership of our bank." He said the supervisory board views Mr. Sewing as "a strong and disciplined leader," adding, "We trust in the great ability of this bank and its many talents."  Deutsche Bank stock is at EUR11.35 ($13.94), down 29% this year. The shares have lost more than half their value in less than three years.  Some of the people said Mr. Achleitner told investors and others, including some outside executives he approached to discuss the CEO role, that Deutsche Bank has the right strategy but hasn't executed it well enough. Mr. Achleitner has told financial executives that the market misunderstands Deutsche Bank, which he said mainly needs new energy in its executive ranks.  The message wasn't persuasive, said one person close to a major investor and other people Mr. Achleitner spoke with.  Some investors said they are aghast at how tumultuous the past few weeks have been, with tales of Deutsche Bank infighting and private CEO discussions spilling into the open. A lot of that focus has fallen on Mr. Achleitner.  "Mr. Achleitner will have to explain this decision much more fully, because [Mr. Cryan] is his hand-picked CEO," said Hans-Christoph Hirt, head of Hermes EOS, which advises shareholders holding just over 0.5% of Deutsche Bank shares.  Last week, banking analysts publicly disagreed with the notion that Deutsche Bank's strategy is on track.  JPMorgan Chase & Co. analysts called for Deutsche Bank to shed U.S. corporate clients and shrink its trading business there. They said the lender had little hope of making enough money to justify its U.S. investment-banking ambitions.  Another analyst expressed frustration that Deutsche Bank wasn't accepting reality. "To get really excited about Deutsche shares we need to see a full strategic overhaul, rather than tinkering," wrote Stuart Graham of Autonomous Research, calling for "radical action."  Patricia Kowsmann contributed to this article.

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