Deutsche Bank boss pressed by regulators to drop dual roles

Regulators are pressing Deutsche Bank’s Christian Sewing to give up his dual role as chief executive and investment bank head because of fears his twin responsibilities could undermine the group’s radical restructuring.

The European Central Bank and German regulator BaFin want the positions to be separated in the next year or two, as they were before Mr Sewing took charge of the investment bank, according to three people familiar with internal discussions.

The regulators also warn there is a potential conflict of interest between the two roles, arguing that the chief executive has to promote prudent risk-taking while the top investment banker by definition is a “risk creator”.

A senior supervisory official with first-hand knowledge of the matter said the watchdogs regard Mr Sewing’s double role as “a temporary stopgap [rather than] a permanent solution”.

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Four large Deutsche shareholders added that Mr Sewing’s double role was a good short-term solution but stressed that the lender needed to get more investment bank expertise on the executive board.

One of the investors warned that Mr Sewing was “spread too thin” and could not run the overall bank and oversee the investment bank sufficiently robustly to satisfy supervisors and shareholders.

Constructive dialogue

Deutsche said the bank was in a “continuous constructive dialogue with our regulators”, but had “presently no plans to change management board responsibility for our investment bank”.

Mr Sewing, chief executive since April 2018, assumed direct oversight of the struggling investment bank in July. Although Mark Fedorcik replaced Garth Ritchie as investment banking chief in the same month, Mr Sewing is in practice the boss.

New York-based Mr Fedorcik is not a management board member and reports to Mr Sewing. Ram Nayak, head of fixed income sales and trading, also reports to Mr Sewing.

Mr Ritchie was one of the first casualty’s of the group’s radical downsizing, which involves the bank pulling out of equities trading, cutting 18,000 jobs and hiving off €72 billion of risk-weighted assets as it plans to shrink its balance sheet by more than a fifth.

Supervisors want Mr Sewing to concentrate on running Germany’s largest lender as chief executive. The bank has 90,000 employees and €1.5 trillion in total assets. “Neither of his roles are part-time jobs,” said the supervisory official.

Oversight

The ECB and BaFin accepted Mr Sewing assuming direct oversight of the investment bank in the summer because Deutsche needed his experience to make up for the departing Mr Ritchie. But since then, the ECB and BaFin have raised concerns in informal talks with senior Deutsche representatives, three people familiar with the discussions said. They added that the supervisors had not undertaken formal steps and had not given Deutsche a hard deadline.

Deutsche insisted its governance structure was “well-functioning”, pointing to the division of labour between the executive board and the group management committee, a new body created in July that has Mr Fedorcik and Mr Nayak among its members.

The structure “ensures the effective sharing of strategic planning and daily management of the core businesses”, Deutsche said.

The bank also argued the appointment of Fabrizio Campelli as chief transformation officer on Friday “gives the [chief executive] and his deputy far more time to focus on the strategic direction and development of the business”.

The senior regulatory official said the watchdogs’ concerns were regardless of current governance structures and Mr Campelli’s appointment.

The official also pointed out that Mr Campelli’s appointment did not address Mr Sewing’s dual role. “The issue remains on the to do list,” said the person, adding that “the current set-up should not remain in place for much more than a year”. – Copyright The Financial Times Limited 2019