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Hermes EOS engages with Deutsche Bank on strategy and control and compliance

Ahead of the Deutsche Bank annual general meeting on Thursday 23 May 2019, Roland Bosch, Senior Engager for Hermes EOS at Hermes Investment Management, highlights the continuing questions about Deutsche Bank’s strategy and its control and compliance functions, and outlines Hermes EOS’ voting recommendations.

  • Hermes EOS has had extensive engagement with Deutsche Bank since 2009 and has raised concerns regarding the apparent lack of an implementable value-creating strategy in previous shareholder meetings
  • Hermes EOS welcomes the improvements that Deutsche Bank has made to its control and compliance functions in recent years, however does not think that there has been enough focus and investment in this area and believes that more needs to be done
  • Despite continued concerns, Hermes EOS acknowledges the progress the Management Board made in 2018 under the new CEO and considers a vote against the discharge as counterproductive

Strategy and performance

“We acknowledge the progress the Management Board has made under the leadership of the new CEO, Christian Sewing, in delivering on key 2018 targets, most notably with regard to costs, the Postbank integration and returning the company to profitability. The company now has a reasonably robust balance sheet, as evidenced by high core equity and liquidity ratios versus peers. However, the Management Board has yet to convince us that it has a value-creating strategy for Deutsche Bank.”

Control and compliance

“Moreover, we have been concerned about Deutsche’s control and compliance functions for many years and while the bank has taken steps to address some of these issues, we do not believe there has been enough focus and investment. In light of the continuing controversies, we therefore welcome the fact that the Supervisory Board has reduced the variable remuneration of the Management Board member with primary responsibility for this area1. We have made it clear to the company in our conversations that more needs to be done to ensure that Deutsche Bank finally gets to grip with historic issues and can demonstrate that it has put in place effective controls and compliance management.”

Remuneration

“Against the backdrop of a significant reduction in the workforce, persistent meagre returns on equity and related value destruction, and a further collapse in the share price, we question whether the compensation practices at Deutsche Bank below the Management Board level are sustainable. We also question whether 2018 was the right time for the Management Board to start accepting variable pay awards once again. We are highly critical of the functional allowances awarded to the head of the corporate and investment bank, as well as the chief risk officer.”

Sustainability

“Having engaged with Deutsche Bank on its sustainability management, we welcome the fact that the CEO is taking up the chairmanship of the company’s sustainability council and urge him to ensure that sustainability finally becomes core to its strategy.”

Vote on the discharge

“Despite our concerns, we believe that yet another change at the top of the Management Board would be counterproductive with regard to making further progress on strategy development and implementation, as well as control and compliance management. We also do not believe that an immediate change at the top of the Supervisory Board would be in the interests of investors and other stakeholders. We have therefore recommended voting in favour of the discharge of both the Management and the Supervisory Boards to give the new CEO and his team more time to address the challenges and turn Deutsche Bank around.”

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Press Contacts

Johnny Weir, Interim Head of Communications
Rachael Dowers, Manager - Corporate Communications
Hannah Bellfield, Assistant Manager - Corporate Communications
Harriet Hall, Associate - Corporate Communications