Deutsche Bank’s newly installed CEO John Cryan has his work cut out for him.
But he has already proved that he’s willing to take the radical steps needed to overhaul the trouble German lender — but markets need to be patient with him.
He’s had to unveil a colossal record net loss of €6 billion (£4.3 billion, $US6.6 billion) with €1.2 billion of that being for litigation charges, which shows he is desperately needed to turn the bank’s fortunes around.
It’s a mean feat. I detailed before just what a crazy mess the German lender is in and how Cryan will have to take radical steps to make the bank leaner, more profitable and to clean up it’s reputation after scores of litigation-related nightmares.
And he didn’t disappoint when Deutsche Bank reported its third quarter results. He took a number of hugely risky but necessary steps to cut the fat from the German lender’s banking body and is overhauling the bank both structurally and in a managerial sense.
Here are the highlights:
- Around 30,000 job cuts — the numbers vary from 30,000 to 35,000 but Cryan says it’s integral to the restructure. “Sadly, this also means closing some of our branches and country locations, and reducing some of our front-office and infrastructure staff too. This is never an easy task, and we will not do so lightly,” he said.
- Exiting 10 countries — Argentina, Chile, Peru, Mexico, Uruguay, Denmark, Finland, Norway, Malta, New Zealand, and is shifting its Brazilian trading operations to other “global and regional centres.”
- Scrap dividends — no shareholder payments for two years.
- Overhauling its IT systems — like all banks, he’s now putting emphasis on making sure it’s systems are up to date.
- Cutting down clients — the bank confirmed that it’s going to slash the number of its global markets and investment banking clients down by 50%. This isn’t as terrifying as it sounds because it said “approximately 30% of clients produce 80% of the revenues in these business divisions.”
- Reducing risk — the bank said it’s going to prioritise anti-money laundering measures and will vet existing clients again “with a view to exiting relationships and locations with unacceptable risks.” It also wants to make sure capital is raised by “disposals” from people actually banking with the group rather than from shareholders.
- Simplifying Deutsche Bank’s management structure by merging the corporate finance and global transaction units and cutting 10 of the 16 management committees.
- Clearing out executives who were close to former chief Anshu Jain, such as securities co-chief Colin Fan and asset management head Michele Faissola.
- Giving regulatory and compliance people a bigger say in how the business is run.
The topline is, he is radically changing the structure of the bank and this is exactly what market players want. But he does have to prove that he can cut down operations and restructure the group while also maintaining a return for shareholders.
In August analysts at Goldman Sachs said in a research note in June (emphasis ours):
Deutsche Bank’s central challenges are structural, rather than management related — the basic difficulty is the absence of a high Return on Equity (ROE) platform. DBK does not have a highly profitable private bank (as is the case with UBS/CS), and its retail/commercial bank is low ROE. At DBK, investment banking (and FICC) is the highest ROE business.
Sadly though, his tough decision to scrap dividends for two years hit the stock this morning — it’s down around 5% on the German DAX.
But he is doing the right thing.
He’s making the bank leaner, sorting out legacy litigation issues, and carving a new path for lender in order to deliver stable profits in the long term. After all, how can it possibly justified to give shareholders returns in an environment where a bank loses €6 billion in just one quarter? He’s cutting down clients in the investment bank but, as stipulated, only a third of those clients produce the most revenue.
Give Cryan time.
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