Deutsche Bank’s Sewing Sees Trading Recovery After Slump

Deutsche Bank AG Chief Executive Officer Christian Sewing said fixed-income trading should improve in the second half, with momentum returning to the business in recent days after the US resolved the debt ceiling impasse.

(Bloomberg) — Deutsche Bank AG Chief Executive Officer Christian Sewing said fixed-income trading should improve in the second half, with momentum returning to the business in recent days after the US resolved the debt ceiling impasse.

After warning last week of a 15%-20% drop in trading revenue for the current quarter, Sewing signaled that the business — the biggest driver of its investment bank — is already on the mend. Clients positioning for heightened economic uncertainty, with interest rates that are likely to stay higher for longer, should help drive activity, he said in a Bloomberg TV interview.

“We can already see, also now in June on the most recent days, that there is momentum in the business,” Sewing said, speaking at Bloomberg’s London office. Traders should see “a slight recovery” in the remainder of the year. 

In the role for five years, Sewing has pledged to increase revenue and profitability following a turnaround that included thousands of job cuts and an exit from equities trading. After posting the highest annual profit in more than a decade, he surprised investors this year by agreeing to buy Numis Corp. in a £410 million ($523 million) deal, his first major takeover as CEO and the lender’s biggest in more than a decade. 

The purchase of the No. 1 UK corporate broker by number of clients will take the German lender from a few dozen bankers focused on UK offerings to one of the biggest teams in the City. Sewing has also hired several senior executives from Credit Suisse Group AG to strengthen the advisory business, taking advantage of the woes at the Swiss rival.

“We looked at Numis for a long, long time,” Sewing said. “And we think it’s an optimal addition to our business mix and our offering in Europe and in particular in the UK.” 

While Deutsche Bank is strong in debt trading and debt capital markets, the Numis deal will allow it to strengthen the business of advising on deals and stock issuance, he said. If more opportunities like Numis arise, Sewing said he’s open to assessing them.

In its last strategy update, unveiled last year, Deutsche Bank indicated it wants to build out businesses that tie up little capital such as wealth management and deal advisory. The goal is to reverse a decade of meager returns and pay out about €8 billion ($8.8 billion) to shareholders over several years, a commitment Sewing confirmed.

“We have clearly committed to our shareholders a capital distribution plan until 2025,” Sewing said. “We stand by our plan of delivering the 8 billion back to our shareholders, including the dividends.”

Sewing faces multiple challenges on the way. The tailwind from the trading boom over the past few years is normalizing while the rebound in deal advisory and underwriting that the lender has been forecasting for some time has yet to materialize. This means that revenue at the investment banking division, which has been Deutsche Bank’s biggest profit engine by far for the past few years, is set to decline. 

Despite the challenges for the trading business, revenue for the bank as a whole should be higher in the second quarter, Sewing said. He confirmed a guidance for full-year revenue of €28-€29 billion.

Sewing signaled the next buyback, which the firm has yet to announce, may be 50% bigger than the previous one, which would take it to about €450 million. Deutsche Bank is still in talks with regulators about the necessary approval, Sewing said, adding he’s confident he can kick it off in the second half of the year.

Rising interest rates are providing support as they boost income in Deutsche Bank’s units focused on lending to households and companies, with pretax income at the commercial banking division known as Corporate Bank predicted by analysts to exceed the investment bank’s this year.

Sewing said he sees interest rates moving higher than many people currently expect, and stay there for longer, given stubborn inflation.

Deutsche Bank is also grappling with cost pressures from wage increases and higher real estate expenses, but also from rising litigation costs. In response, Sewing recently unveiled a new cost-cutting drive that will eliminate 800 senior roles in the back office.

(Updates with comments on deal opportunities in seventh paragraph, buybacks in 12th.)

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