Deutsche Bank hires Cerberus to help tackle costs

Deutsche Bank has hired one of its top shareholders, New York private-equity firm Cerberus Capital Management LP, as a paid adviser to help the troubled lender tackle runaway costs and boost lagging profits.

The appointment of Cerberus comes as Chief Executive Christian Sewing tries to revive the German bank’s fortunes after three consecutive full-year losses, market-share declines and strategic upheaval. Cerberus President Matt Zames, the former chief operating officer of JPMorgan Chase & Co., is leading the advisory team working with Deutsche Bank, a Cerberus spokesman said.

As a private-equity investor, Cerberus often provides advice for a fee to its portfolio companies. The arrangement with publicly traded Deutsche Bank, which hasn’t previously been reported, makes Cerberus the only Deutsche Bank shareholder in a paid advisory role, formally bringing a firm with skin in the game inside the bank’s operations, according to people familiar with details of the arrangement.

Mr. Zames, 47 years old, left JPMorgan in June 2017 after more than a decade. The longtime bank-operations chief previously oversaw JPMorgan’s fixed-income business and was viewed at one time as a potential CEO successor. He joined Cerberus in April.

He has already met with Mr. Sewing and other Deutsche Bank executives to work on evaluating its expense controls, computer systems and other aspects of its business with a fresh eye, people close to the companies said.

The private-equity firm holds a roughly 3% stake in Deutsche Bank shares, first disclosed in November 2017. Shares were trading around EUR15.70 ($18.46) at the time of the disclosure. They are now trading below EUR10.

Both companies expect Cerberus to be restricted from buying or selling Deutsche Bank shares while it is advising the bank, in keeping with securities laws, according to people familiar with the consulting arrangement. The role likely exposes Cerberus to material inside information that it could use to its advantage.

A Cerberus spokesman said the advisory contract is with Deutsche Bank’s management board, citing the private-equity firm’s "extensive track record of driving value through financial and operating improvements." Mr. Zames declined to comment.

A Deutsche Bank spokeswoman said Cerberus’s "acknowledged expertise" will support the bank’s efforts to provide attractive returns for investors.

In a given year, Cerberus advises dozens of portfolio companies in areas ranging from strategy and technology to manufacturing and regulatory issues through a wholly owned affiliate, Cerberus Operations and Advisory Co. It sits alongside the company’s private-equity and distressed-debt funds. Overall, Cerberus manages $34 billion in assets.

The advisory arrangement could extend more than a year but is nonbinding–that is, both companies have options for ending the relationship–people briefed on the agreement said. Cerberus hasn’t engaged as an activist investor with its Deutsche Bank stake, people close to the bank say, meaning it hasn’t sought to influence leadership changes or strategy decisions.

For a year after Cerberus’s consulting role with Deutsche Bank ends, Cerberus won’t be able to target the company as an activist, one of the people familiar with the agreement said.

Cerberus intends to remain a long-term Deutsche Bank shareholder and has said privately it supports Mr. Sewing and his management team, according to people close to both companies. Cerberus’s focus is on helping the lender out of a prolonged performance slump. Its shares have fallen almost 40% this year amid a change of CEO and other high-level departures, cost-cutting initiatives and strategy shifts that remain unconvincing to many investors.

Deutsche Bank’s management board is responsible for company strategy and the bank’s day-to-day operations, risk controls and accounting, and reports to the supervisory board.

Deutsche Bank courted Mr. Zames unsuccessfully as a candidate for the supervisory board before he joined Cerberus, according to people familiar with discussions at the time.

Last year, Cerberus emerged as a roughly 5% shareholder in rival German lender Commerzbank AG. The investments have helped fuel speculation that the two banks might eventually merge, a prospect people close to the banks say they aren’t actively planning for.

Cerberus’s advisory relationship with Deutsche Bank isn’t dependent or focused on a merger with Commerzbank or any other bank, according to people briefed on discussions between Cerberus and Deutsche Bank.

The roots of the advisory discussions between the two companies go back to February, when John Cryan was still Deutsche Bank CEO. Mr. Sewing and Frank Strauss, then co-heads of the retail and private bank, met with Cerberus co-CEO Frank Bruno to discuss the retail-banking business, a person briefed on the meeting said.

The discussions remained low-key through tumultuous weeks as Mr. Cryan’s tenure was coming to an end. On April 8, Mr. Sewing was named as his replacement. Mr. Sewing then traveled to meet with clients and investors.

He met with Cerberus again in New York around the time Mr. Zames was joining the private-equity firm, leading to the consulting deal, according to the people close to the firms.

As JPMorgan’s operating chief, Mr. Zames oversaw technology and cybersecurity, compliance, real estate and other areas of the bank. Deutsche Bank executives have told Cerberus and Mr. Zames they are open to a range of ideas to improve the bank’s operations, the people said.

Write to Jenny Strasburg at [email protected]

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