Deutsche Bank, under CEO Sewing, gradually got out of dysfunction

The day before one of the largest margin collections in history, Deutsche Bank CEO Christian Sewing attended an emergency meeting with a message that was not unfamiliar: something went wrong, and billions of dollars were involved.

But with executives briefing him on the call in late March about the bank's exposure to Archegos Capital Management, it wasn't all bad news this time. Risk managers have been concerned about the rapid growth of the family's office for some time and have been asking for more collateral. The bank's traders are ready to quickly dump assets that have fallen sharply.

So with Archegos' collapse costing competitors more than $10 billion, Deutsche Bank escaped unscathed and posted its highest profit in seven years. That's enough to surprise longtime observers of Deutsche Bank, which has been mired in a spate of crises over the past 15 years. Now, in addition to being able to avoid evil, there is also a growing sense that Sewing may finally bring Germany's largest bank out of the quagmire of the past decade.

"Over the past few years, what they've accomplished has been impressive," said Matthew Fine, portfolio manager at Third Avenue Management. He began investing in Deutsche Bank's stock after it was appointed Ceo of Swing in 2018. After several failures, years of incredible underperformance and considerable fundraising, at some point really had to be scrapped, sewing seems to have done.

The CEO is just over halfway through a major four-year restructuring, and Deutsche Bank, which has been frail in Europe's financial world for years, appears to be turning it off. Shares have more than doubled from all-time lows, when the pandemic has reignited concerns about whether Germany's largest bank can weather another crisis. As a result, Deutsche Bank was not overwhelmed by non-performing loans, but instead took advantage of the trading boom that boosted global investment banks. After years of sluggish atmosphere, some executives at the Frankfurt headquarters are now even considering whether to merge to profit from recent setbacks from competitors.

To be sure, for a bank that has lost money for five years over the past six years and whose share price is still below its peak of 87%, the threshold for success is low, but the possibility of mistakes remains. Sewing's self-help was also helped by factors beyond his control, such as a rebound in global markets and broad government assurances, which were able to suppress defaults during the pandemic.

Sewing initially planned to focus more on corporate finance and further scale back the trading business, but weeks after he announced the plan, he quickly adjusted with the times as market conditions turned against him. In Germany, he faces the reality that to make money in a country with negative interest rates and too many banks, he needs to raise fees and lay off employees at the risk of offending customers and unions.

Most importantly, however, the former risk manager has made progress in dealing with the bank's internal problems that once left his predecessors scratching the head. He ended the bank's departmental strife, which Sewing once called "Deutsche Bank's disease," and dealt with the issue of risk missteps that led the bank to repeatedly blame itself.