Deutsche Bank’s Rising Star Faces Unit in Crisis After Promotion

When Claudio de Sanctis was promoted in July to oversee Deutsche Bank AG’s vast German retail operations, he wasted no time in making his mark.

(Bloomberg) — When Claudio de Sanctis was promoted in July to oversee Deutsche Bank AG’s vast German retail operations, he wasted no time in making his mark. 

Before he had officially assumed the new post, de Sanctis began working on a restructuring plan, envisioning deep changes including large-scale jobs cuts at a division that has suffered from poor profitability for at least a decade. Days after taking over, he removed several senior positions and toured the company to meet with staff.

Then, disaster struck. Thousands of clients complained about failing services in the wake of a huge IT project at the Postbank retail unit, forcing Deutsche Bank Chief Executive Officer Christian Sewing into a public apology. The cost of repair work is growing while the German watchdog BaFin has taken the rare step of installing an independent monitor, signaling it’s not sure Deutsche Bank will get a handle on the issue on its own.

Internally, Sewing was livid and vowed to solve the Postbank issue by the end of the year. That puts the pressure on de Sanctis, a 50-year-old rising star at the lender: With little experience in IT or retail banking, and unable to speak German, he needs to show he can rally the troops and fix a problem that has plagued Deutsche Bank for more than a decade.

“We are focused on resolving the Postbank backlog,” de Sanctis said in a video call. “But that’s not going to create a delay for the new strategy we are working on” for Deutsche Bank’s German operations, he added. He’s planning to present that strategy in “a few weeks’ time,” he said. 

The crisis has created an unfamiliar situation for the dual Italian and Swiss citizen, who has climbed the ranks rapidly since joining from Credit Suisse in late 2018. Starting out as head of the European wealth management unit, de Sanctis was promoted to lead that business globally less than twelve months later and in 2020 added responsibility for the lender’s retail operations in Spain and Italy. 

In July, Sewing put him on the executive board and in charge of 19 million clients in Germany — including 12 million at Postbank, which was acquired in 2010. He’s now head of the lender’s biggest division by revenue and staff and ultimately responsible for about 27,000 employees and €310 billion ($350 billion) in deposits.

“It’s certainly been a difficult start for Claudio de Sanctis,” said Stephan Szukalski, speaking in his role as head of the labor union DBV. He also sits on Deutsche Bank’s board of directors. 

De Sanctis’ promotion came after he had earned plaudits for boosting profitability at his previous unit, known as International Private Bank. Helped by rising interest rates, revenue at the unit rose to €1.75 billion during the first six months of this year, up more than 10% from 2020, the year he took the helm. Costs came down as well.

He pulled off the feat by cutting hundreds of branches. He refurbished the remaining ones and even opened a few new sites to focus on affluent clients, who typically demand services where banks can earn more money such as brokerage and investment advice. He also hired a substantial number of relationship managers for wealth management in a bid to grow.

His plan for Germany repeats several elements of that strategy, including a goal to eliminate a large number of roles by shutting down more branches and replacing back-office staff with technology, according to people familiar with the matter, who asked for anonymity to discuss internal information. As with his approach for Italy and Spain, he will seek to lower expenses while growing revenue at the same time, the people said. 

“I’m not going to discuss the new strategy in detail but what I can say is that a main part of it will build on Deutsche Bank’s unique retail position in Germany,” de Sanctis said. “The aim is to put Deutsche Bank back at the heart of German society, and retail is the way to get there.”

Away from the Postbank recovery, de Sanctis is trying to move past another issue that has attracted scrutiny from regulators. While he was head of Deutsche Bank’s wealth unit, employees in Spain sold complex foreign-exchange swaps to small domestic companies, some of which suffered steep losses as a result.

The European Central Bank has been scrutinizing the practice, Bloomberg News has reported, while the Spanish financial watchdog CNMV said in a statement last week it’s assessing whether those sales complied with rules that effectively ban marketing complex derivatives to inexperienced buyers. 

Read More: Deutsche Bank’s FX Swap Sales Probed by Spanish Regulator

De Sanctis is leading the effort at Deutsche Bank to wind down the legacy portfolio of FX swaps, the people said. The bank has stopped selling the derivatives in Spain, Bloomberg News has reported. 

Inherited Problems

The problems at Postbank are an inheritance from de Sanctis’s predecessor Karl von Rohr, who relinquished his role as division head at the end of June. 

Deutsche Bank, which said the main issue was a lack of staff to help with the transition, has since mobilized about 800 employees to address the problems. While that has brought some relief, it’s also siphoning resources away from other projects. There will be significant extra costs due to hiring additional staff and delaying some planned job cuts, the people said. 

The Postbank crisis notwithstanding, de Sanctis plans to unveil his new strategy soon. He’s held several digital town hall meetings, alongside executives including Sewing, to explain the situation and what they’re doing to fix it.

“Claudio de Sanctis isn’t the one to blame here,” said Szukalski, the labor representative. “On the contrary, we’re seeing that the issue has the highest priority for him and for Christian Sewing.”

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