We will not get rid of our struggling US unit

Kai Pfaffenbach | Reuters

Christian Sewing, CEO of Germany’s Deutsche Bank, addresses the audience during the bank’s annual meeting in Frankfurt, Germany, May 24, 2018.

Deutsche Bank CEO Christian Sewing told CNBC on Friday the German banking giant remains committed to its U.S. unit even after failing the second round of annual Federal Reserve stress tests.

The Fed said on Thursday it saw “widespread and critical deficiencies” in the bank’s capital planning controls.

Last week, Deutsche Bank cleared the Fed’s easier first stress test hurdle, which measured capital levels against a severe recession, the strictest scenario ever run by the U.S. central bank.

Sewing, who was appointed as CEO in April in an abrupt management reshuffling, acknowledged the Fed’s new concerns, saying “more needs to be done,” but added “we are confident to get over this over the next 12 months.”

Despite the troubles at its U.S. unit, Sewing said Deutsche Bank has no intention of getting rid of it. “The U.S., next to Germany, is one of the most important markets we’re in. And that will remain the case. It’s a key market.”

The Fed stress test stumbles follow months of turmoil for Germany’s largest lender, which has seen its shares tank about 44 percent this year.

Sewing told CNBC the bank is now on the right path, after cleaning up its balance sheet and increasing capital over the past three years.

“Quarter after quarter, we’ve shown two things: Stable revenue and stable franchise,” he said. “We will show year-over-year an increase in profitability.”

However, Sewing said it still has work to do on creating “sustainable profitability” and getting “more disciplined on our cost action.”

Responding to rumors earlier this month that Deutsche Bank might be interested in merging with rival Commerzbank, Sewing said management’s top priority is getting its house in order.

“We have so much to do on our own and we have a clear focus for the next 18 months that we should execute on our homework,” he said.

The 47-year-old Sewing, a German national, was promoted to CEO about two months ago, replacing Briton John Cryan who had been at the helm since 2015.

Cryan was ousted after investors had lost faith that he could return the bank to profitability after three consecutive years of losses.

— Reuters contributed to this report.