John Cryan is trying to transform Deutsche Bank into a simpler and better-run bank.
When he came in as CEO last year he had two key strategies for doing that:
1. Stop people from fooling themselves that things were still great.
2. Give staff a long-term vision of where the bank was going.
“When I took over the management team I thought it was important to do two things — the first was to disrupt the place a bit,” Cryan told an audience of business executives at the DocuSign Momentum conference in London on Tuesday.
Cryan, formerly the chief financial officer at UBS, first joined Deutsche Bank as part of its supervisory board in 2013 and said he “was familiar with a lot of the things that I thought needed to change.”
“The first thing to do was to shock people into recognising that although there’s a lot of things that are great about the company, there was a lot that needed to be done,” Cryan said.
When Cryan came in, the bank had repeatedly missed profit forecasts and the share price was seriously lagging. The bank was valued at less than the liquidation value of its assets — not a sign of investor confidence in management and its direction.
Cryan said: “One of my criticisms of the company was that it was still celebrating the clear success it had in growing very rapidly, going from being a relatively simple commercial bank in Germany to being one of the world’s biggest investment banks. People were still doing high fives around the room. That was no longer appropriate.”
People were still doing high fives around the room. That was no longer appropriate.
He added: “Success is a dreadful, dreadful teacher. It gives you the sense that if you’ve done something good and you’re doing something good, you shouldn’t be doing something else.”
Staff were initially surprised that he was raining on the parade. But Cryan says: “Then I think people realised that actually, there’s something to this. If management’s constantly projecting good news and the reality is somewhat different to that, you start to worry about whether senior management are making the right decisions.”
“Bringing the messaging back to what the people who work for Deutsche Bank know is reality, people started to give you the benefit of the doubt that you might be making the right decisions.”
‘We needed to give people in the company a vision’
Cryan’s second priority? “What you’ve got then to do is show people the direction you think the company should go. We needed to give people in the company a vision. You’ve then got to get your clients to come with you because not everyone wants to change.”
The CEO then criticised the short-term thinking driven by quarterly reporting, saying: “Too often large corporations these days are under pressure to produce quarterly results that meet expectations, and that drives short-term thinking.
“We do need some of that, we have to respect the fact that other people than you are in the company. But I think you’ve got to have the courage to have a 3 to 5-year view of the right direction you need to take the company. Just stick to it and ignore the short-term problems.”
Deutsche Bank set out its “Strategy 2020” plan last October, aiming to become simpler, less risky, more efficient, and more disciplined.
So far, it has suffered a lot of short-term problems. Profits fell 58% in the first quarter of the year due to “challenging” global markets and retrenchment in certain businesses. The share price has also slid from the highs Cryan enjoyed when he initially came in.
Still, Cryan is committed to his vision and a lot of that revolves around technology.
“We need to talk about becoming an applied technology company,” he said. “You’re regulated as a bank, you have the DNA of a bank, you operate as a bank, but actually these days you need to be a technology company operating in banking.”
Deutsche Bank isn’t alone in this strategy.Goldman Sachs says it now thinks of itself as primarily as a tech company and JPMorgan CEO Jamie Dimon has warned that “Silicon Valley is coming” and banks need to adapt fast. You can read more about Deutsche Bank’s technology plans here.
Despite his ambitions, Cryan admitted that transforming a bank of Deutsche’s size — around 120,000 staff and €1.6 trillion in assets — isn’t easy.
“There’s a lot of inertia in banking,” he says. “Because it’s very heavily regulated, once you’ve complied with the regulation you feel as though you’ve solved the problem. It’s also a very, very big thing to change something. Nobody wants to break a process that has complex consequences and is probably working OK and it’s just big.”