WHEN: Today, Friday, June 29, 2018
WHERE: Throughout CNBC’s Business Day programming – from Deutsche Bank’s NYC headquarters
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Deutsche Bank CEO Christian Sewing and CNBC’s Wilfred Frost airing throughout CNBC’s Business Day programming today Friday, June 29th. The following is a link to full video of the interview on CNBC.com: https://www.cnbc.com/video/2018/06/29/full-interview-with-deutsche-bank-ceo-christian-sewing.html.
All references must be sourced to CNBC.
WILFRED FROST: Christian, thank you very much for having us here today. And firstly, congratulations on your appointment as CEO recently.
CHRISTIAN SEWING: Thank you very much.
WILFRED FROST: So we-- we'll start with the stress tests. Out yesterday. And-- the-- the Fed said you had, quote, widespread and critical deficiencies in your capital planning controls for the U.S. unit of course. Do you disagree with them?
CHRISTIAN SEWING: I would like to first emphasize-- what we achieved last week. I think we have shown that from a robustness, from a solidity of the bank, we have shown strong results in the qualitative stress test a week ago. We are very happy about this because there was a lot of work which we have to put into this one. And we know that on the controls side we had deficiencies. We have done good progress. And we are completely committed to work with the authorities to get that even better right over the next year.
WILFRED FROST: And-- and you've talked about those deficiencies. And your CFO-- said the quote, material weakness in the firm's data capabilities on the earnings call as well. How much more investment is needed into those capabilities, the tech side of things? And how long will it take until you'll be confident that you won't meet this fate from the regulators again?
CHRISTIAN SEWING: Again, I think, first of all, we have done a lot already. We see the progress. But we are also aware that more needs to be done. That is all in the plan. And therefore we are confident to get over this over the next 12 months.
WILFRED FROST: Given the size of the U.S. unit-- relative to the total bank, relatively small, and the problems it's causing you, do you ever consider just getting rid of it as part of the restructuring?
CHRISTIAN SEWING: No, not at all. I mean, for various reasons. Number one, look at the size of the U.S. operations, what it makes for all of Deutsche Bank. The U.S. is next to Germany one of the most important markets we are in. And that will remain the case. It's a key market for Deutsche Bank. Secondly, we should also see again what the stress test is all about. And from a robustness point of view, from a stability of the bank, we have shown above-average results last year. We know that we have some work to do on the qualitative side. We are fully committed as a management board with the regional management here. And therefore we are highly confident to get over this one and be a key partner here in the U.S.
WILFRED FROST: Let's touch on the broader restructuring plan. Because there's been a number of-- restructuring plan attempts over the-- the last decade. And despite those restructuring attempts, profi-- profitability is-- is close to zero. And-- and-- and a lot of investors remain concerned still about the viability of-- of-- of the business model. So why is your restructuring plan different?
CHRISTIAN SEWING: Well, first of all, we start from-- a very good foundation. If you look what we have done over the last three years, how we cleaned up the balance sheet, how we increased the capital, if you look at our liquidity position, we start from a foundation which is very robust. I agree with you, we need to work on a sustainable profitability. And therefore we decided to increase the part of the stable earnings in the bank. That was the reason why we integrate Postbank with the retail and commercial bank in Germany. We are the clear number one in Germany with that. We will see growth in this one. We will see growth in the wealth management and asset management business. And we will have a very focused approach to our corporate investment, which is the core DNA of Deutsche Bank. We focus in those businesses where we are market leading. We have many of those. And last but not least, we get-- get to-- get more disciplined on our cost action. That was the weak part. We have measures in place. And I'm confident that we shall progress there.
WILFRED FROST: If we talk about that corporate investment bank, the area that as you said you are shrinking, I mean, you're trying to shrink your way to higher returns. Is there an example of that actually working in the last decade or two anywhere? It's a pretty tough task.
CHRISTIAN SEWING: I think we should be careful with the word shrinking. Actually, we are investing into those businesses, into corporate business where we are market leading. Look at the transaction bank. We are the number one euro clearer worldwide. We are one of the biggest U.S. dollar clearers globally. We are one of the largest export finance companies. We are the capital market house. All these businesses, also in the U.S., will be actually invested in. We have certain sub-businesses where we think we are not dominant and we are not having a leading market position. There we will do adjustments and use those resources which we can free up there in order to invest into other parts of the corporate investment. The corporate investment bank overall will not shrink. But we will grow those stable businesses, as I said before, to get to a better balance. That is the story.
WILFRED FROST: But that size you-- you mentioned, Christian, is-- is all relative. And it's smaller than it used to be for Deutsche Bank. I mean, total revenue-- was 37 billion 2015. Down to-- to 31, I think, billion last year. You-- you are losing revenue there. You-- you're losing staff there. Returns are very low. It's-- it's a tough task to get to that 10% ROE targetfrom here.
CHRISTIAN SEWING: That is right. And therefore, we clearly have a plan to go in trajectory to this 10%. And the real issue is that now quarter after quarter we show two things: stable revenue and stable franchise. And I think we are on a very good way there. And at the same time, that we get the trajectory right on the cost side. And also there I'm convinced with the measures we have taken and the measures we have already implemented that we are on the right way. And we will show year-over-year an increasing profitability and come then to the profitability which this bank needs.
WILFRED FROST: Let's talk about the retail bank, which, as you said, you've got a big position integrating Postbank in-- in-- in Germany. Is that really the place to be within banking at the moment when you look at the interest rate outlook-- the sort of economic-- malign in-- in the Eurozone? Is that really where you want to be long term?
CHRISTIAN SEWING: I think the retail bank is one of the key ingredients because it stands for stable business. And the retail bank also in Europe but also in Eur-- in Germany is all about scale. It is important that we have a large enterprise there—that a large operation. And with Postbank we have more than 20 million clients. More than 10 million clients of-- of these 20 million are digital online clients. We are working on a platform solution for our retail business. And with the synergies we get out of this merger, this will be a business which over the next three to four years will show a return of equity of above 10%. And then it's a very nice and stable business you should be in.
WILFRED FROST: Would more scale help? Would you like to merge with Commerzbank?
CHRISTIAN SEWING: I think we have so much to do now on our own. And we have a clear focus for the next 18 months that we should execute on our homework. That is for me key. That is where the management team is focusing on. And I think that is our top priority.
WILFRED FROST: In terms of the-- the retail bank outlook, interest rate outlook, is it fair to say that rates are gonna stay lower-- in-- in the Eurozone than perhaps people have expected last year?
CHRISTIAN SEWING: You know, I'm not that much depending-- or I-- I don't-- I don't make our-- business plan and capital plan dependent on the interest rate environment. It is always hard to foresee that. I personally-- expect a certain rate and an increase over the next 18 months also in Europe. But I think with the size we have, with the synergies we can take out-- out of the merger of this bank, we will have a very profitable retail business even without a rate increase. And that was the driver why we went for the integration of Postbank.
WILFRED FROST: Are you concerned about the political outlook in-- in the Eurozone whether domestically with-- Angela Merkel's own government or in countries like Italy?
CHRISTIAN SEWING: I'm actually pleased. I mean, whatever I can draw now over the last-- 12 hours I think they had-- agreements and certain alignments on the immigration topic. I think it's fundamentally vital that we have a unified Europe and that-- we have agreements on certain key questions like immigrations but also banking union and capital markets union. And personally, I think we are going into the right direction. Therefore, I'm welcoming actually the decisions made last night in Europe. We need a strong Europe. We need to be competitive. And Europe needs to be unified.
WILFRED FROST: If we talk about-- trade-- a little bit, clearly there's-- a growing protectionist rhetoric from-- President Trump and-- and also-- from the E.U. in terms of response. If we do see full tariffs imposed on German auto makers, would that be a big blow to-- to the German economy?
CHRISTIAN SEWING: You know, I-- I just don't want to only focus on the-- on the German-- economy. I think overall the trade and the tariff is something which at the end of the day limits growth globally. I'm a firm believer in free trade and-- not to impose tariffs. I think and I hope that we get better agreements and that the politicians can-- align their views. Because globally I think with increased tariffs, that will limit growth, reduce growth. And that is not only bad for the German economy.
WILFRED FROST: What is the view of-- of President Trump in-- in Germany?
CHRISTIAN SEWING: You know-- I-- I think I'm not here to-- to give you our view or the view of Germany to President Trump. I think we are all interested in unified approach to these key questions like immigration, like trade. And I'm still very hopeful that we find the right solution.
WILFRED FROST: I want to come back to the sort of core issue at Deutsche Bank. And, at the start of-- of this month, after a number of hurdles already-- S&P's downgrade and-- share price-- declines, you-- you wrote a staff-- a staff email to-- to all colleagues in which you said, quote, "Many of you are sick and tired of this bad news. That's exactly how I feel. But there's no reason for us to be discouraged." Since then, a month-- less than a month has passed. The share prices hit another record all-time low. And you had this qualitative failure with the Fed stress test yesterday. How much more of this can-- can your employees take? Is morale very low?
CHRISTIAN SEWING: No, I wouldn't say that. I mean, honestly I've been for 29 years in this bank. It's a fantastic institution. And never underestimate the resilience of Deutsche Bank. And that's exactly what I can see also in the morale of the people and that globally. We actually just did a people survey. And for the first time since three or four years, it actually went up. We are not yet happy with all the results. But the direction is the right one. That speaks for the resilience, for the morale of the people. They want clarity. I gave them the clarity in which direction we go. That is what people want. And I'll tell you-- that will pay very positively on the resilience and morale of the company.
WILFRED FROST: And-- and then-- so final-- detailed question. If I take a snapshot from today to sort of a decade ago, just before the crisis at the peak, your market cap has declined since then 70%. JP Morgan's, for example-- for a U.S. investment bank comparator, is up over 100% market caps today. 367 billion for them. 22 billion for you. Will you ever again compete with the big U.S. investment banks?
CHRISTIAN SEWING: Well, first of all, we should also see the structural differences of the U.S. banking market, the European one, and also the German one. I mean, there are different preconditions. And therefore there's also some reasons for the different developments. Secondly, there is a lot in our hands. It's all about sustainable profitability. You mentioned S&P before. They did not actually criticize the stability of the bank. They said this bank needs to get sustainable profitable. If we can show that quarter-by-quarter that we get the costs under control, and I'm very confident that we get the costs under control, that we have a stable franchise, and go from a revenue point of view in that direction where we think we can go and will go, the sustainable profitability will go up quarter-by-quarter. And I think we'll have a reevaluation of Deutsche Bank. It all depends on sustainable profitability. We have taken the right steps. And hence I'm confident that we can keep up.
WILFRED FROST: Christian, thank you very much for your time and having me here today. And congratulations again on your appointment as CEO.
CHRISTIAN SEWING: Thank you very much. Thank you.
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