Ex-JPMorgan CFO, now activist, bets big on Deutsche Bank

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Ex-JPMorgan Chase finance head Doug Braunstein is betting that Deutsche Bank AG CEO Christian Sewing will finally succeed where many others have failed.

Braunstein’s Hudson Executive Capital LLP on Thursday revealed that it has built a 3.1% stake in Deutsche Bank after the shares dropped to a record low. He’s staking about $660 million on the belief that Sewing will reverse the bank’s fortunes and successfully complete the lender’s fourth turnaround plan in three years.

Deutsche Bank is one of the worst performing lenders in Europe, having lost about 44% of its market value this year after investors questioned Sewing’s ability to boost revenue and restore the bank to a sustainable level of profitability. The stock gained as much as 3.6% in Frankfurt on news of Hudson’s investment.

“My investment is based on my belief that Deutsche Bank now has the right guy in the right job at the right time,” Braunstein said by telephone. “Christian has a background and a reputation, and a very good one, as saying something and doing what he says and hitting what he says.”

He also said he doesn’t want a supervisory board seat. Deutsche Bank’s shares should trade about three times higher than they currently do if Sewing’s plan succeeds, he said. A merger with another bank isn’t needed to achieve that.

In the third quarter, Deutsche Bank posted its lowest quarterly revenue in eight years and abandoned some targets, driving the stock to its lowest ever and reviving questions about strategy. Issues at the investment bank and failure to reinvigorate growth cost John Cryan, Sewing’s predecessor, his job.

Braunstein’s bet on Sewing’s ability to turn around Deutsche Bank is a large one. The stake is worth 580 million euros at the bank’s current share price, making it more than three times bigger than Hudson’s next biggest public investment. He said he sees “significant upside” for the private and commercial bank from rising interest rates and is bullish on the growth prospects at the global transaction bank, which he called the “crown jewel.”

In a statement, Sewing said that Deutsche Bank’s welcomes the investment.

“Doug Braunstein and Hudson Executive come with deep backgrounds investing in financial services companies,” he said. “We appreciate Hudson Executive’s confidence in our ability to execute on our strategic objectives.”

Activists haven’t always been successful targeting European banks. Barclays Plc, in the midst of a controversial overhaul of its investment bank, is now the target of Edward Bramson after his Sherborne Investors acquired 5.2% of the voting rights. In Switzerland, Rudolf Bohli gained little traction for his plan to break up Credit Suisse Group AG despite a public campaign against its management, while UBS Group AG was once targeted by Knight Vinke Asset Management.

It’s not just European banks that have been in the activists’ cross-hairs. Valueact Capital Management, the activist fund run by Jeff Ubben, disclosed a $1.7 billion bet on Citigroup Inc. this year. The San Francisco-based fund, which managed $13 billion in assets, argues that the bank is undervalued and misunderstood by investors and has tremendous upside.

Braunstein’s investment comes as Deutsche Bank’s largest single investor pulls back from the bank. The Chinese conglomerate HNA Group has been decreasing its stake since the beginning of the year and is scaling back even more as it seeks to pay down its high level of debt.

Hudson’s stake is just above the 3% notification threshold set by the German regulators and puts Hudson just above Cerberus. Only the members of the Qatari royal family and BlackRock hold larger stakes in Deutsche Bank.

The low valuation — its price-to-book ratio is 0.3 — has fueled speculation about a merger with other banks, most likely Germany’s second-biggest listed bank, Commerzbank AG.

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