Deutsche Bank bosses face fire from the floor

In his opening remarks at Deutsche Bank’s stormy annual meeting, chairman Paul Achleitner quipped that “the work of a supervisory board isn’t some kind of reality TV show”. But when disgruntled shareholders launched a barrage of criticism against the bank’s supervisors and managers, Thursday’s AGM resembled just that.

Seven weeks after the supervisory board ousted chief executive John Cryan — who had overseen a third straight annual net loss, a dismal start to 2018 and a bloating of costs — the struggling lender’s top team was taken to task by investors. Since Christian Sewing’s appointment as CEO, shareholders had been forced to stomach a further 5 per cent drop in the share price, even as the wider German stock market rose by the same margin.

A colourful cast of minority shareholders called for Mr Achleitner to go, with one even accusing him of being “involved in a whole complex of criminal proceedings for fraud and other misleading activities”.

Another held up a “red card” to signal that Mr Achleitner was in violation of his duty to respect investors, and said shareholders should kick the chairman out for good. When the Austria-born Mr Achleitner interrupted him for being off-topic, the shareholder asked: “Shall I switch to Bavarian or Austrian so you can understand me?”

Mr Achleitner, who had claimed he was “looking forward to today’s dialogue” in his opening remarks, appeared rattled by the clamour, often arguing with the shareholders for speaking beyond the allotted time limit. At one point he declared the board would give shareholders an €11 dividend. The crowd went wild, prompting a smile, an “oops” and a correction, to “11 cents”.

Mr Sewing tried to placate his audience by unveiling more details about the investment banking shake-up he had vaguely outlined a month ago. Back then, he said the bank would shrink its US rates trading unit and its equities division, along with its corporate finance business outside of Europe.

Yet the details unveiled on Thursday — more than 7,000 jobs to be culled, the corporate and investment bank balance sheet shrunk by 10 per cent to about €900bn, and €1bn of additional cost cuts — failed to impress.

Deutsche’s share price fell 4.8 per cent to €10.38 on Thursday, the lowest since October 2016 and 40 per cent lower than a year ago.

“The share price is like a ride on a ghost train, where an unpleasant surprise lurks around every corner,” said Andreas Thomae, a fund manager with Deka Investment, which represents 0.8 per cent of Deutsche’s equity.

While Mr Sewing tried to sound optimistic, he also flagged that investment bank revenues, which had already fallen 13 per cent in the first quarter, remained under pressure. The restructuring fell short of some investors’ hopes. The announced job cuts were lower than the 10,000 that had been under consideration. The plan to shrink the commercial and investment bank’s cost base by €1bn by the end of 2019 is only equivalent to an 8 per cent decrease on the 2017 number.

The new chief acknowledged that some observers craved more drastic steps. “It’s actually quite easy to cut things on paper and calculate how much you, [the] shareholders, will benefit,” he said — but he warned of the risks of doing more harm than good, saying: “I’m all for being radical but first and foremost I’m responsible.” Disorderly or hasty cuts “can destroy value very quickly instead of creating it”.

Some observers expressed doubts over the credibility of the bank’s reaffirmed commitment to reach a 10 per cent return on tangible equity by 2021.

“We regard the ROTE target as too ambitious,” UBS analysts wrote in a note to clients, pointing out that Deutsche’s annual revenues would have to be €6bn above their current level to meet that goal. This was “not realistic”, they concluded.

Ingo Speich, fund manager with Union Investment, noted that Deutsche’s woes came amid a very benign macroeconomic environment, and warned that the lender could become a takeover target in the next downturn.

“In a stress scenario, the pressure may become so big that a break-up or an emergency merger with another bank becomes inevitable,” he said.

The AGM hubbub masked some positive news in Mr Sewing’s speech. He flagged that Deutsche had already fired more than 600 investment bankers in recent weeks — and that the culling had so far done no substantive damage to other business areas, something that had been a key concern of analysts. “We have not seen any meaningful revenue attrition,” he said.

Despite the verbal lashing from the floor, large shareholders still backed Mr Achleitner, albeit with gritted teeth. A motion to replace him as chair of the AGM was rejected by more than 99 per cent of attending shareholders.

The formal vote on the chairman’s removal, expected late on Thursday, is highly unlikely to get the backing of more than just a small minority of investors, as big investors have already signalled they will reject it. However, this does not mean the chairman is off the hook.

“Mr Achleitner,” one large investor told the Financial Times, “is clearly in the last-chance saloon.”

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