Christian Sewing has been chief executive of Deutsche Bank for less than eight months, but he’s already facing a major test of his ability to turn a page on the bank’s troubled past.
German authorities searched the bank’s offices in Frankfurt for a second consecutive day on Friday as part of an investigation into potential money laundering.
The scale of the legal threat posed by the investigation remains unclear. But a lengthy — and costly — probe could make it harder for Sewing to overhaul the struggling lender and further delay the return to healthy profits.
Prosecutors in Frankfurt are looking into whether Deutsche Bank (DB) helped customers set up offshore companies in tax havens, while failing to report suspicious transactions.
Both the bank and prosecutors said the probe is related to the Panama Papers, a 2016 leak of confidential documents that exposed international money laundering networks and shell companies.
The investigation covers events that happened as recently as this year, according to prosecutors. On Friday, a source with knowledge of the situation said that authorities had searched Sewing’s office.
Shares in Deutsche Bank have plummeted nearly 6% since the raids commenced, at one point dropping below €8 ($9.10) to reach a new all-time low.
Deutsche Bank said in a statement that it would cooperate with investigators. “As far as we are concerned, we have already provided the authorities with all the relevant information regarding [the] Panama Papers,” it said.
Germany’s biggest bank employs roughly 95,000 workers and has assets worth €1.4 trillion ($1.6 trillion). It’s one of 29 lenders designated by the Bank for International Settlements as playing a significant role in the global financial system.
Yet it has struggled to turn a profit in recent years amid questions about its business strategy, and the heavy financial burden of past misconduct.
Deutsche Bank has spent over $19 billion on legal costs since 2008, including $7.2 billion on a settlement with the US government in January 2017 over claims that it packaged and sold toxic mortgages.
Sewing, a retail banking veteran who took over as CEO in April, has used his first months in the job to accelerate an overhaul of the bank, which has closed hundreds of branches, cut thousands of jobs and slashed costs.
He struck a positive tone when the bank published its third quarter financial report in October, writing in a letter to employees that “what we’ve achieved so far this year makes me optimistic.”
“The prospects are good,” he added. “The past few months have proven how much corporates, institutional investors and private clients are willing to work with us and how good and stable our client relationships are.”
New potential legal issues, however, threaten to ensnare Sewing in the same pattern of negative headlines and higher legal coststhathobbled his predecessors.
Sewing has claimed meaningful progress on cost reductions. But the bank’s stock price has continued to decline, with losses reaching nearly 50% so far this year.
The CEO said in October that Deutsche Bank was on track to produce its first annual profit since 2014. That’s one thing that could help restore the faith of investors.
