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Deutsche Bank replaces CEO amid losses and lack of direction

After holding an evening conference call, the bank's supervisory board said it would replace John Cryan, the chief executive of Deutsche Bank since 2015, with Christian Sewing, a longtime insider who has been in charge of the bank's wealth management division and its branch network in Germany.

[FRANKFURT] The banking crisis that began in 2008 seems like ancient history in much of the world, but not at Deutsche Bank. Never-ending turmoil at the bank - Germany's largest lender - including three straight years of losses, a plunging share price and a troubled investment bank, cost its chief executive his job Sunday.

After holding an evening conference call, the bank's supervisory board said it would replace John Cryan, the chief executive of Deutsche Bank since 2015, with Christian Sewing, a longtime insider who has been in charge of the bank's wealth management division and its branch network in Germany.

"Following a comprehensive analysis, we came to the conclusion that we need a new execution dynamic in the leadership of our bank," Paul Achleitner, the chairman of the supervisory board, said in a statement late Sunday.

Mr Sewing, 47, is the fourth person in four years to hold the title of chief executive or co-chief executive at Deutsche Bank. He represents a younger generation of managers but will face the same set of problems that have bedeviled his predecessors - problems that have roots going back years or even decades and stem largely from Deutsche Bank's ambition to be a major investment bank.

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The problems include a workforce that is too big and too costly, dysfunctional internal computer systems and a large inventory of risky assets that are difficult to sell.

One of Mr Sewing's main tasks will be to resolve Deutsche Bank's ambivalence toward its investment banking unit, which has produced huge profits in some years and huge losses in others. The bank, based in Frankfurt, is one of the last European banks with a prominent outpost on Wall Street, but has struggled to keep up with its US rivals even as they have come back stronger than ever.

Marcus Schenck, the co-head of the investment bank, will also leave as part of the shake-up announced Sunday. Garth Ritchie, who shared leadership of the investment bank with Schenck, will assume sole responsibility.

Mr Sewing (his name is pronounced "saving") is not expected to radically change the bank's direction, but he will face pressure to move more aggressively than Mr Cryan, whose dismissal had been widely rumored in recent weeks.

During his three-year tenure, Mr Cryan, a bookish Briton who speaks German fluently, helped Deutsche Bank begin to crawl out from under the legal problems that had weighed on the bank's reputation and cost it billions of euros in fines and settlements.

Late in 2016, for instance, Deutsche Bank reached a settlement with the US government to pay US$7.2 billion related to the sale of toxic mortgage securities before the 2008 financial crisis.

But new scandals have continued to appear. Last year, Deutsche Bank agreed to pay more than US$600 million to authorities in New York and Britain to settle charges that it had helped Russian investors launder as much as US$10 billion through branches in Moscow, London and New York. Regulators said the conduct took place from 2011 to 2015.

Mr Cryan was also unable to return Deutsche Bank to profitability. The bank reported a loss of 735 million euros (S$1.18 billion) for 2017, its third consecutive annual loss.

Investors have punished the bank's shares, which have lost more than half their value since Mr Cryan became co-chief executive in July 2015. Mr Cryan initially shared the top job with Jurgen Fitschen and became the sole chief executive in 2016.

Unlike almost all of his recent predecessors, Mr Sewing is not primarily an investment banker. He has worked at Deutsche Bank since 1989, spending time at bank offices in London, Singapore, Tokyo and Toronto. He held top positions in risk management at the bank and was its chief auditor until being named to the management board in 2015.

As a German and a Deutsche Bank lifer with a background in risk management, Mr Sewing will reassure German regulators concerned that the bank has taken too long to pare down the risky assets accumulated by its London-based investment banking unit.

With its zeal to remain in the Wall Street big leagues, Deutsche Bank was slower than its European rivals like Credit Suisse to scale back its investment banking operations after the financial crisis.

Mr Sewing's management portfolio has included Postbank, which offers banking services from German post offices. That background will most likely raise expectations that he will shift Deutsche Bank's emphasis from investment banking back to its roots in the German domestic market.

Those expectations may be misplaced. The German banking market is overcrowded and profit margins are slim. Deutsche Bank has little prospect for growth without investment banking and international expansion. In a sign that the bank continues to have ambitions in investment banking, the supervisory board has nominated John Thain - former chief executive of Merrill Lynch and the New York Stock Exchange and a former co-chief operating officer of Goldman Sachs - as a new member. The nomination must be approved by shareholders at their annual meeting in May.

Mr Cryan's departure followed several weeks of media speculation that created the impression of intense infighting between him and Mr Achleitner, a former partner at Goldman Sachs who has been chairman of the Deutsche Bank supervisory board since 2012.

On March 28, Mr Cryan wrote a memo to Deutsche Bank employees in which he acknowledged the rumours but said, "I am absolutely committed to serving our bank and to continuing down the path on which we started some three years ago."

Late Saturday, Deutsche Bank issued a one-sentence statement saying that the supervisory board would discuss the chief executive job, tacitly confirming that Mr Cryan was on his way out. On Sunday evening, the 20 members of the supervisory board held a conference call, issuing a statement well after 11pm Frankfurt time.

The public power struggle was reminiscent of previous management changes, and could also put pressure on Mr Achleitner, who bears ultimate responsibility for the bank's strategy.