Deutsche Bank’s Deep Strategic Hole

Shareholders expect perpetual robust growth in revenues and profits. But why would anyone expect banks to grow faster than the year-on-year growth of national gross domestic product, which is in the 1.5 to 2.0% range?

At one level, the problem Deutsche Bank faces is that a legacy of past mistakes and illegal operations, especially by its investment banking arm, have in recent years caused billions in fines, restructuring charges, and net losses, DW reported.

Under outgoing CEO John Cryan, Germany’s largest private bank—the 16th largest bank in the world by total assets, as of June 2017—took significant steps to resolve these legacy problems. But Cryan was forced out by Paul Achleitner, chairman of Deutsche’s supervisory board, for failing to execute the restructuring strategy with sufficient vigor.

Now, Christian Sewing, who was appointed the new CEO “effective immediately” by the supervisory board on Sunday evening, has sent a memo to the bank’s employees that indicates he intends to be more rigorous on cost-cutting. He warned them to expect “tough decisions” from him. He also announced that he wanted the bank to become more aggressive in pursuit of financial targets on the revenue side, urging staff to adopt a “hunter’s mentality”.

Sewing is a Deutsche Bank lifer, who started as a trainee when he was a teenager—he is now 47—and stayed, except for a two-year stint at mortgage lender DGH from 2005 to 2007.

“Now someone has been raised to the top of the largest German bank who has worked there almost all his life. This inspires confidence among shareholders that the right steps are now being taken to make the turnaround,” said Jochen Stanzl, a market analyst at CMC Markets in Frankfurt.