The Washington PostDemocracy Dies in Darkness

For Deutsche Bank’s Sewing, Progress Is Likely to Slow

FRANKFURT AM MAIN, GERMANY - FEBRUARY 02: Christian Sewing, CEO of German company Deutsche Bank speaks during the bank’s annual press conference on February 2, 2023 in Frankfurt am Main, Germany. The Management Board of Deutsche Bank presented the preliminary annual results for the financial year 2022 at a media conference. (Photo by Jens Krick - Pool/Getty Images) (Photographer: Pool/Getty Images Europe)

Christian Sewing faced a lot of skepticism in 2019 when he promised to whip Deutsche Bank AG into shape. The chief executive officer has proved those doubts wrong in many ways, but the German bank’s 2022 results on Thursday confirm he has fallen short of some ambitions. The worry from here is that last year might mark the high point for real progress. 

Sewing has beaten targets for return on equity and for capital strength, thanks largely to a strong revenue tailwind from rising interest rates and the investment banking boom through the pandemic.

Where he has struggled is on costs: The bank has made big leaps but came up shy of its goals. It wanted to cut adjusted annual costs (which excludes restructuring charges and bank levies) to 17 billion euros ($18.7 billion) this year from 19.5 billions euro in 2019: It ended up at 19 billion euros.

It also targeted a cost-to-income ratio of 70%, but finished 2022 at 75%. To give Sewing his due, that is down from 108% in 2019 when Deutsche Bank was spending 1.08 for every euro of revenue.

The expense battle is far from over. Sewing unveiled the next target on Thursday: A cost-to-income ratio below 62.5% in 2025. This is key to Deutsche Bank making progress toward becoming a more attractive stock to investors. The revenue tailwinds that have helped Sewing along are likely to drop in the years ahead.

The first big element is revenue from lending: Net interest income jumped 22% last year from the year before, in line with the average for the four biggest US lenders and ahead of UniCredit SpA and Banco Santander SA in Europe, which also reported this week. From this year on, however, Deutsche Bank’s interest margins on lending won’t rise much further as the benefit of higher rates is consumed by the loss of cheap  loans from the European Central Bank and the higher cost of sourcing funds from elsewhere.

While Italian and Spanish banks will also see funding costs rise, they get more revenue gains from higher mortgage rates than German or Dutch banks, where home loans are often fixed for a decade. The upshot is that Deutsche Bank is more dependent on growing its lending, which may be tough as economies slow.

Deutsche Bank’s other really big revenue boost has been from its bond and currency-trading desks. This missed expectations for the fourth quarter, but still turned in its best revenue in a decade. Volatility in interest rates, government bonds and currencies was the story for global investment banks in 2022. That played to Deutsche Bank’s strengths because it’s focused on so-called macro markets more than on trading corporate credit, where activity was poor. Its revenue in dollar terms was up 13% for the year, better than several big US players. Conditions like these aren’t likely to repeat, and its bond trading revenue is bound to be lower in 2023 – along with everyone else’s.

The thing is, Deutsche Bank lacks some of the investment banking and other trading specialties that might make up the difference for rivals. It quit equities trading, and its investment bank is heavily skewed toward advising and financing private-equity deals. That last business bombed in 2022, which is why its investment bank revenue fell more than US peers, tumbling 65% in dollar terms for the full year. For sure, leveraged finance will recover at some point, but European regulators don’t like this business and are making it incrementally more expensive to do.

Deutsche Bank’s shares fell Thursday, partly because its final quarter was weaker than expected, but mainly because it didn’t announce the 650 million-euro buyback analysts were expecting. It did lift its dividend by 50% and promise to return a total of 8 billion euros through dividends and buybacks for the years 2021 to 2025, which is an affirmation of an earlier goal. Shareholders haven’t seen much of this money yet and are likely to have to wait until 2025 to get the larger part. And that still depends on Deutsche working harder still on reducing costs.

The big wins have been had, for Sewing and Deutsche Bank. Slow grinding improvement — at best — will likely be the story from here. 

More From Bloomberg Opinion:

• Banks’ Early Caution Could Pay Off in Late 2023: Conor Sen

• Jamie Dimon’s Subtle Message to Bank Regulators: Marc Rubinstein

• Deutsche Bank’s 2021 Results Are Half the Climb: Paul J. Davies

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

More stories like this are available on

©2023 Bloomberg L.P.