Deutsche Bank CEO rallies staff after S&P ratings downgrade

Source: Xinhua | 2018-06-04

Deutsche Bank chief executive officer Christian Sewing issued a rallying call to staff on Friday following a ratings downgrade by Standards & Poor's (S&P) of the German largest financial institute.

"On a corporate level, our financial strength is beyond question", Sewing wrote in an internal message to employees of the Dax-listed firm. "We will prove that we deserve a different rating on financial markets', he added.

The CEO, who assumed his post as recently as April, was hereby responding to news that U.S. rating agency S&P has lowered the valuation of Deutsche Bank's long term debt by one notch from A- to BBB+. The decision is likely to raise the borrowing costs shouldered by the Frankfurt-based company on the interbank market and hence also weigh on its already weak profitability.

S&P justified the move with reference to plans announced recently by Sewing to lower current staff levels from around 97,000 to under 90,000 and to drastically reduce Deutsche Bank's presence on the U.S. market as well as its global investment banking services in general.

According to S&P, these drastic steps implied a "deeper restructuring" than anticipated which would carry "non-negligible execution risks" for the company.

"While we consider management is taking tough, although likely inevitable, actions and proposes a logical strategy to successfully restore the bank to more solid, sustainable profitability over the medium to long term, the bank appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring," a statement by S&P read.

The resulting downgrade came close on the heels of news that U.S. regulators had placed the local subsidiary of Deutsche Bank on its list of "problem banks" with weaknesses serious enough to threaten its survival. Furthermore, it was revealed on Friday that new antitrust action was being brought against Deutsche Bank in relation to its involvement in the Australia and New Zealand Banking Group (ANZ) together with U.S. Citibank.

Sewing wrote in his message to staff that he was "sick of the bad news" and emphasized that the company would have to act "swiftly and decisively" to restore its fortunes. Nevertheless, he argued that even if Deutsche share prices were trading at a "historical low", there was no reason yet for employees to "hang their heads low."

Sewing has described the current level of returns at Deutsche Bank as "simply unacceptable." Total profits at Deutsche Bank in Q1 2018 fell to 120 million euros compared to 575 million euros during the same period last year. At the same time, quarterly revenue shrank by around five percent to 7 billion euros (8.2 billion U.S. dollars).

Not least due to several expensive legal settlements in connection to fraudulent behavior, Deutsche Bank has written heavy losses for the past three consecutive years. Cumulative annual losses since 2015 currently stand at 9 billion euros. (1 euro = 1.17 U.S. dollars)