November 1, 2018 / 10:25 AM / 13 days ago

Ex-JPMorgan CFO's activist fund takes stake in Deutsche Bank

FRANKFURT (Reuters) - An activist hedge fund led by the former finance chief of JP Morgan Chase (JPM.N) has taken a 3.1 percent stake in Deutsche Bank (DBKGn.DE), saying it backed new Chief Executive Christian Sewing’s efforts to turn around Germany’s biggest bank, but there was more to do.

FILE PHOTO: Christian Sewing, new CEO of Germany's Deutsche Bank, gestures as he addresses the audience during the bank's annual meeting in Frankfurt, Germany, May 24, 2018. REUTERS/Kai Pfaffenbach/File Photo

The move by New York-based Hudson Executive Capital LP, led by Douglas Braunstein, makes the hedge fund one of Deutsche Bank’s biggest investors and boosted its shares on Thursday.

After three years of losses, a failed regulatory test, several attempts to restructure, a leadership shake-up and a ratings downgrade, many investors have lost faith in Germany’s flagship bank. Its shares have fallen 44 percent this year.

Hudson “sees significant long-term value in Deutsche Bank,” it said in a statement.

“Recent actions, including changes in management and headcount reductions, demonstrate the resolve of the new management team to deliver on promises made to investors,” it added.

However, it cited “still significant room” for the bank to use its funds more efficiently to improve returns.

“Unfortunately, historical missteps have clouded the issues for many investors today and has led to sentiment uniquely bearish to Deutsche Bank,” Hudson said. “We believe we can now shine light on this opportunity.”

Sewing, who took the helm in a sudden management change in April, welcomed the investment.

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

Braunstein said in an interview that Sewing’s promotion to CEO was the catalyst for his investment. Before, there was dysfunction and no clear strategy, he said.

“People say in the company that he has made more decisions in three months than the company made in the previous three years,” Braunstein said of Sewing.

He said he was not seeking a seat on the bank’s supervisory board. Instead, the most valuable role he can play is to encourage other institutional investors to invest in Deutsche, he said. “They have to get on the bandwagon.”

Deutsche Bank's shares rose almost 3.5 percent in Frankfurt, outperforming Germany's DAX index .GDAXI of blue-chip stocks.

In its statement, Hudson largely endorsed Deutsche Bank’s current strategy of job cuts in investment banking, as well as a focus on retail banking, transaction banking and asset management.

Other major shareholders in Deutsche Bank include the royal family of Qatar, Chinese conglomerate HNA, BlackRock (BLK.N), and U.S. buyout fund Cerberus.

EnTrustPermal CEO Gregg Hymowitz confirmed that his $20.5 billion firm, which specializes in placing money alongside activist money managers, had provided a “significant portion” of the Hudson investment in Deutsche Bank.

“(We) believe from this valuation, with Doug’s intense focus, new management’s ability to execute on the game plan and reinvigorated shareholder accountability, I think we can double our money,” Hymowitz said.

EnTrustPermal previously had co-invested $650 million in Nestlé alongside U.S. activist firm Third Point LLC, run by Dan Loeb.

Reporting by Tom Sims and Lawrence Delevingne; Editing by Mark Potter, Alexandra Hudson and Richard Chang

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