By Jenny Strasburg
Deutsche Bank AG's shares traded at an all-time low Monday just
weeks after talks with Commerzbank AG failed. Now bank officials,
facing fresh investor doubts about the lender's ailing investment
bank and overall strategy, are bracing for a barrage of criticism
from shareholders at the bank's annual meeting Thursday in
Frankfurt.
Shares hit a new intraday low of EUR6.617 in early afternoon
Frankfurt trading. Deutsche Bank shares are down 39% in the past
year as it loses market share while battling to stem compliance
failures and high costs. German officials have fretted over its
ability to compete on its own, potentially hurting Europe's biggest
economy, which itself is under pressure.
UBS Group AG analysts on Monday downgraded Deutsche Bank shares
to "sell" from "neutral," citing a lack of strategic optionds and
that the investment bank "has been losing revenues in absolute and
relative terms." Talks with Commerzbank broke down last month,
leaving questions about Deutsche Bank's immediate prospects.
Chairman Paul Achleitner and co-president Garth Ritchie, who
oversees the investment bank, face individual shareholder proposals
at the annual meeting aimed at their performance, as do two other
senior bank officials. Deutsche Bank has told investors it supports
them.
The two most influential shareholder-advisory firms this month
took the rare step of urging investors to punish the bank's top
executives en masse at this week's meeting by withholding
confidence votes for the bank's two main boards
The votes are often a formality, and largely symbolic. But this
year they could fuse investor frustration over Deutsche Bank's
continuing yearslong decline, Glass Lewis & Co. and
Institutional Shareholder Services said in separate advisory
reports.
Mr. Achleitner has met with around two dozen institutional
investors in recent weeks, defending his oversight and the
performance of executives, according to people familiar with the
discussions.
In a private, personal plea, Mr. Achleitner and Chief Executive
Christian Sewing wrote to BlackRock Inc. and other large investors
this month asking them to refute the proxy advisers'
recommendations and support Deutsche Bank's boards. The two
officials cited their "different interpretation of the progress
that we have made," according to a May 10 letter to BlackRock
executives reviewed by the Journal. "We hope you will find our
arguments persuasive."
Investors have questioned some 2018 executive pay packages,
particularly a EUR3 million "functional allowance" the supervisory
board awarded Mr. Ritchie, some of the people say. The cash
allowance, described as for Brexit-preparation work, was equivalent
to his base salary, the maximum that compensation rules allowed. It
made him the highest-paid management-board member, with a total of
EUR8.6 million ($9.6 million), more even than Mr. Sewing
earned.
Mr. Achleitner is also chairman of the compensation committee,
adding to pressures on him to defend the investment bank's
performance, the people said.
Some investors want dramatic changes, such as closures of entire
trading businesses. After he took over as CEO in April 2018, Mr.
Sewing cut staff in the money-losing equities business, shrank
other businesses and cut overall investment-bank costs. But many
investors and analysts saw that as tinkering around the edges.
Executives this year have eyed equities, equity derivatives and
portions of rates trading for downsizing, The Wall Street Journal
reported in March. They've declined to comment publicly on any
potential strategy shifts.
Some executives hoped the bank could unveil a retooling of parts
of the investment bank weeks ago, but the work has taken longer,
people close to the bank said.
ISS noted it previously gave Deutsche Bank executives the
benefit of the doubt, citing difficulties in turning around a big
bank in tough markets. But ISS this month called for a protest
vote: "We believe it is time for shareholders to hold the boards
accountable for the many years of substantial monetary and
reputational costs to the bank borne by shareholders."
Glass Lewis singled out troubles with the investment bank and
U.S. operations as focuses of investor ire. Debt-rating agencies
have aired concerns about the bank's ability to make money. Again
the investment bank, long fueled by trading revenue, is key: It
contributed just over EUR13 billion, or 52% of the bank's total net
revenues, in 2018. But the unit's revenues have been in steady
decay.
Deutsche Bank said its share price doesn't reflect its strong
financial position and that concerns raised are legacy matters. It
noted the bank was profitable in 2018 for the first time since
2014, and said in a statement, "We have significantly improved our
risk and control systems in the last three years and we will
continue to do so."
There have been bright spots. Deutsche Bank regained some
revenue-based market share in the first quarter in the business of
advising on public offerings, leveraged buyouts and corporate
mergers, according to Dealogic data.
Deutsche Bank has faced persistent concerns about legal
liabilities tied to money laundering controls in Europe and the
U.S. It has said it's improving its oversight.
Financial-crime specialists in 2016 and 2017 recommended
reporting transactions involving legal entities tied to Donald
Trump and Jared Kushner but were rebuffed internally, the New York
Times reported Sunday. A Deutsche Bank spokeswoman told the
newspaper: "At no time was an investigator prevented from
escalating activity identified as potentially suspicious." A
spokeswoman for the Trump Organization said the firm didn't know of
such flagged transactions. A Kushner Cos. spokeswoman said any
money laundering allegations were "totally false."
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
May 20, 2019 08:09 ET (12:09 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.