The Chancellor Whisperer: Deutsche Bank’s New Clout in Berlin

After refocusing Deutsche Bank on its home market, CEO Christian Sewing has emerged as one of the most influential executives in Berlin.

rdmbe3wl[h98a0q0{6ap9jaf_media_dl_2.png Bloomberg

Article content

(Bloomberg) — Christian Sewing had just finished the panel discussion when Finance Minister Lars Klingbeil took the stage and recalled a recent phone call with the chief executive officer of Deutsche Bank AG.

Article content

The pair, along with Siemens CEO Roland Busch, spoke at length “about the reform process and what needs to happen in Germany,” Klingbeil told the audience at the conference in Berlin in June. “So some of the topics currently at the center of the debate are familiar to me from our conversation over the weekend — for which I am grateful.”

Article content

Article content

Article content

For Deutsche Bank, the off-the-cuff comments underscore a remarkable transformation. Less than a decade ago, Germany’s largest lender had been practically ostracized from the political stage, portrayed as a symbol of greed and mismanagement amid losses and misconduct fines. Now the co-leader of the left-leaning Social Democrats was seeking to burnish his credentials through his exchange with Sewing.

Article content

Article content

Klingbeil isn’t the only politician rubbing shoulders with the Deutsche Bank CEO. Sewing is one of just a handful of top executives who regularly speak with Chancellor Friedrich Merz, according to people familiar with the matter. Government officials privately sought his advice after Italy’s UniCredit SpA’s embarked on its takeover attempt of Commerzbank AG, and when they looked for outside views on who to support as next president of the European Central Bank, the people said, asking for anonymity to discuss private information.

Article content

That relationship positions Deutsche Bank and its CEO as key players as the country embarks on a series of reforms, from a massive spending package to boost defense and infrastructure, to a pension revamp that’s expected to funnel tens of billions of euros into financial markets each year — if the embattled Merz manages to see his ambitious agenda through.

Article content

Article content

“Christian Sewing wants to bring Deutsche Bank closer to its German roots again,” said Normen Fritz, a fund manager at Union Investment in Frankfurt. “He knows that Deutsche Bank has competitive advantages in its domestic market in times of geopolitical conflicts and protectionism.” 

Article content

Sewing declined to comment on specific efforts to restore relations with Berlin and on which topics he has offered advice. He said business in general has a responsibility toward the country in which it is based.

Article content

“In a geopolitical world that is so complex, it’s important to be firmly rooted in one’s home country and home market,” he said. “We share a commitment to moving this country forward. This is not solely the responsibility of the federal government; it’s equally our responsibility as the business community.”

Article content

This account of how Sewing emerged as an influential force shaping the debate in Berlin is based on conversations with more than a dozen people who have direct insight into the CEO’s evolving relationship with the government. Most asked not to be named discussing confidential information. 

Article content

A government spokesperson declined to comment for this story.

Article content

In Germany, as in most countries, a regular exchange between the government and large corporations is the rule, not the exception. Before Sewing took over, however, relations between Deutsche Bank and Berlin were at a low point. Negative interest rates and stricter regulation had upended the business model of many lenders, but Germany’s largest bank was additionally plagued by infighting and saddled with billions in litigation expenses from past misconduct.

Article content

The combination had triggered a crisis of confidence in the lender, with the share price tumbling from one record low to the next. After multiple failed turnaround plans, it was caught in what its former finance chief, James von Moltke, at the time called a “vicious circle” of declining revenue, “sticky” expenses, a lowered credit rating and rising funding costs.

Article content

Former Chancellor Angela Merkel, still wary of the costly bailouts after the financial crisis, reportedly ruled out coming to Deutsche Bank’s aid if needed. She had come under criticism at the time after hosting former CEO Josef Ackermann for his birthday party. Adding insult to injury, Ackermann said in an interview that he would be “ashamed” to take government money. Subsequent CEOs, from the late Anshu Jain to John Cryan, were more at home on trading floors or in London’s financial circles than in Berlin.

Article content

Article content

By the time Sewing took the helm, Deutsche Bank was effectively an outcast, said one of his long-time colleagues, who asked for anonymity to speak freely. Merkel and other government officials didn’t want to be seen as too close to the country’s largest lender, this person said.

Article content

Sewing, the first German national in more than a decade to run the bank without a co-CEO, made restoring relations with Berlin a priority. He also knew that to succeed, he had to put Deutsche Bank on a solid footing again. He embarked on a revamp that emphasized its role in financing the country’s large businesses and reversed the international expansion that had left it with losses and misconduct allegations. 

Article content

Sewing scaled back the investment bank that frequently drew the ire of politicians for being too risky and exited equities trading. He also integrated Postbank, a popular domestic retail lender whose future was uncertain at the time. Deutsche Bank had acquired the business in 2010, but later flip-flopped over whether to integrate it or sell it again as negative interest rates eroded income from lending.

Article content

Article content

By 2020, earnings started to stabilize and the new CEO got his first shot at rehabilitating Deutsche Bank’s standing in Berlin. The Covid 19 pandemic was causing lockdowns across the globe. Germany pledged to support the economy with loans and guarantees of more than €1 trillion ($1.14 trillion), but it needed banks to facilitate the flow of money. 

Article content

This time, Sewing vowed, banks would be “part of the solution” instead of the problem, as they were during the financial crisis of 2008. Deutsche Bank played a significant role in funneling emergency funds to companies, several people with knowledge of the matter said, underscoring its important role in funding the local economy.

Article content

The CEO cemented Deutsche Bank’s role as Berlin’s partner in 2022, when he helped advise the government on how to design sanctions against Russia, which had just invaded Ukraine. Unlike some peers, Deutsche Bank also quickly wound down its Russia business and transferred a large IT hub from the country to Germany. It helped that profits were rebounding, with interest rates finally rising and fixed-income trading enjoying an industry-wide boom.

Article content

In the years since, Sewing has become increasingly outspoken on policy matters such as competitiveness, regulation, energy security and pension reform. His roles as head of the German bank lobby BDB and former head of the European lobby EBF allowed him to speak out on a broad range of issues and for a larger group of companies.

Article content

Sewing has pushed hard for cutting back the European Union’s red tape and boosting the banking sector’s competitiveness. Deeper EU integration in banking and financial markets has been another cornerstone of his public messaging, including joint debt issuance for defense financing.

Article content

Last year, Sewing along with Siemens CEO Busch and other executives founded an initiative aimed at strengthening the dialog between business and government. Dubbed “Made for Germany,” its members comprise dozens of companies that together pledged more than €800 billion of investments in the country. The effort signaled to Berlin that companies are serious about making a significant contribution to the government’s efforts to revive the economy.

Article content

Current and former officials agree that Sewing has done a good job restoring Deutsche Bank’s reputation in Berlin. He’s seen as straight-talking, unpretentious and down-to-earth. He doesn’t sugarcoat his views or conflate interests, which has helped build trust. Both the chancellor — a one-time board member of BlackRock Inc. in Germany — and the finance minister appreciate Sewing’s input, said the people. Some describe the relationship between Sewing and Merz as friendship. 

Article content

Article content

Sewing further strengthened ties with the mainstream parties by his outspoken warnings against the increasingly powerful far-right party Alternative for Germany, or AfD, labeling anti-immigration populists as economic “poison.”

Article content

“Today, Deutsche Bank is seen as being at the heart of society,” said Chairman Alexander Wynaendts. “It’s important that we also take positions on things that affect our society and economy. We believe that the policies of the extreme parties are not conducive and supportive for the economy.”

Article content

Such a stance isn’t without risk. Since taking over last year, Merz’s approval ratings have plummeted, opening a path for the AfD to vault ahead in polls. Nationwide, the AfD topped an INSA poll earlier this month with 29%, eight percentage points ahead of Merz’s CDU/CSU bloc, while the Social Democrats, which form a coalition with Merz, trailed behind with 13%. 

Article content

For now, the trust Sewing has built gives him an influential voice, including on issues that have a direct bearing on Deutsche Bank. The CEO was tapped when Germany sought outside views on at least one potential candidate to replace Christine Lagarde as president of the ECB, a person familiar said. His positive assessment is said to have helped the person’s chances. Officials also queried him about UniCredit’s takeover bid for Commerzbank, a deal that the government opposes vehemently. 

Article content

Article content

Sewing in 2019 held merger talks with Commerzbank at Berlin’s request. The discussions ended up going nowhere, but they underscored Sewing’s willingness to listen to the government and provided him with a deep understanding of the competitor. He even studied another move on Commerzbank shortly after UniCredit unveiled its plan to buy the lender in September 2024. Yet again, he decided Deutsche Bank wasn’t ready to step in.

Article content

To some extent, that decision reflected the fact that despite Deutsche Bank’s turnaround, it’s still not where Sewing wants it to be. Profitability continues to trail the competition and investor payouts are lower than at most peers. Deutsche Bank’s market capitalization is just above €60 billion, even though it has one of the larger balance sheets in European banking. Several smaller competitors such as UniCredit and BBVA SA have long broken through the threshold of €100 billion.

Article content

That valuation is one reason why Deutsche Bank has largely stayed away from major deals as consolidation heats up in Europe. Another is that Sewing, a risk manager by training, is generally wary of the integration challenges. Some former colleagues say he’s mainly focused on details and internal management, and struggles to delegate. To cement control, he has filled key positions with close confidants. But he shies away from major strategic moves that would expand Deutsche Bank’s footprint again, these people say.

Article content

The £410 million ($547 million) purchase of UK brokerage Numis three years ago remains the only significant completed deal under Sewing. He has mulled buying the custody business of Wells Fargo and parts of the Wirecard wreckage, people familiar with the matter have said.

Article content

His caution reflects his experience at the lender. Sewing, 56, joined Deutsche Bank in 1989 as a trainee in a branch in the provincial town of Bielefeld, just when the company acquired Morgan Grenfell in the UK. The deal laid the groundwork for a global expansion that would last more than two decades and briefly turn it into the world’s largest bank by assets following the acquisition of Bankers Trust at the turn of the century.

Article content

As CEO, Sewing had to contend with some of the unintended consequences of that aggressive growth, which had fueled infighting and excessive risk taking. Deutsche Bank paid billions of dollars to settle allegations of misconduct. It is still facing lawsuits from former employees who are seeking almost €1 billion in combined damages, saying they were wrongfully blamed for the Banca Monte dei Paschi di Siena SpA accounting scandal. Sewing at the time oversaw an internal probe into derivatives deals at the center of the scandal. 

Article content

Article content

Deutsche Bank has said in its annual report that it considers all such claims to be without merit and will defend itself against them robustly.

Article content

Shortly after the audit of the Monte Paschi deal, Sewing was promoted to the bank’s management board, and soon thereafter put in charge of the private and business clients, the first time he oversaw a client-facing division. He spent much of his time on the integration of Postbank, which ended up taking more than a decade amid strategy reversals and technical failures. The experience permanently soured his appetite for large-scale deals and strengthened his conviction that piecemeal change from within works best.

Article content

For relations with Berlin, his reluctance to engage in transformational deals is likely an advantage, adding to the impression that Deutsche Bank is focused on lending to the economy, rather than chasing quick gains with risky wagers. That focus paid off when Merz early last year unveiled a spending plan exceeding €1 trillion over the next decade to boost infrastructure and defense, freeing the country from the fiscal straitjacket Merkel had locked it into for more than a decade. 

Article content

Article content

Sewing had long called for the debt brake to be loosened, while adding that more effort was needed to funnel private money into investment in Germany, for instance by completing the capital markets union. Deutsche Bank has set up a defense banking working group to help finance the rearmament of the country. It was already a top player in infrastructure finance before.

Article content

Merz backed another, long-awaited proposal last month for a sweeping reform of the pension system that would require some retirement contributions to be invested in stocks and bonds. Only days after the panel discussion in Berlin, where Finance Minister Klingbeil spoke about his phone call with Sewing and Busch, the chancellor said the plan will inject “at least” €30 billion per year into financial markets.

Article content

Shares of DWS Group, the asset manager owned by Deutsche Bank, rose. Sewing said previously that such a reform could encourage savers to set aside more money for retirement. That would open up business opportunities for Deutsche Bank, which has 19 million retail clients and “product factories” with its asset management arm DWS and its investment bank, Sewing said last year. 

Article content