How do you recruit for the banking world’s hardest job? Deutsche Bank chair Paul Achleitner is probably wishing he had gone about it somewhat differently, after news of informal approaches, not denied by the bank, leaked.
The role he wants to fill, chief executive, has proven problematic for the best part of five years, with a succession of experiments at the very top failing to deliver the turnaround Deutsche’s investors so fervently desire.
John Cryan, the German-speaking Yorkshireman who occupies the role, today insisted he remains "absolutely committed" to his job and fired a warning shot to senior colleagues who disagree with the strategy.
“We need to focus on executing on the strategy that was agreed and signed off by both the management and supervisory boards," he said, in a memo to staff published on the bank’s site.
The embattled incumbent joined Deutsche Bank’s supervisory board in 2013, before moving downstairs to take the chief executive job in July 2015. His job has been to restructure and put it back on the path to growth.
The giant bank is one of the top five most systemically important banks in the world, and it still holds a totemic place at the heart of the German economy. Yet the Frankfurt-headquartered lender has recorded three consecutive annual losses, with little sign it can catch up with rivals.
Last week it successfully floated its asset management arm, raising around €1.4bn, but it faces a tricky task in regrouping, with retail operations in Germany not profitable enough to provide a new focus.
Deutsche has lagged peers significantly, with shares losing 30 per cent over 2018 so far. Last week finance chief James von Moltke – reported to have argued with Cryan over strategy – said the bank struggled during the first quarter, unable to capitalise on the strongest European economy in years.
“This is surprising, but not if you look at the strategy of Deutsche Bank,” says Dieter Hein, banks analyst at Paris-based Alphavalue. “All the other European peers have much reduced their investment banks.”
“The investment bank is not profitable enough, too costly and too risky,” Hein says, adding that it has paid out €35bn in bonuses since the financial crisis, while raising a similar amount from shareholders.
Analysts at UBS don’t think Deutsche will achieve its 2021 implied target of €32bn, with the worry that it will then be unable to put as much capital to work as its American peers – paving the way for further underperformance and a struggle to hit targets of 10 per cent return on tangible equity.
The problem is not new for Deutsche: in 2014 Anshu Jain, one of Cryan’s predecessors in an unusual co-CEO set-up, raised €8bn in capital as he doubled down on a commitment to universal banking – covering extensive retail operations all the way through to the biggest ticket investment bank activities – as other European peers retrenched.
It’s a model that has come under increasing pressure since the financial crisis, particularly as low volatility in recent years has removed a big chunk of trading desks’ easier money. Jain’s move proved to be a precursor to another plea to weary investors for €8bn by Cryan at the start of 2017, even as he managed to finally settle most of the crisis-hangover mega-fines.
At the same time investment banks have been loaded up with regulation as the casino bank reputation garnered during the financial crisis has taken its toll. Heavier capital requirements in particular have dragged on profits, to the point that some bank executives believe universal banking has essentially failed.
Yet Achleitner, a former Goldman Sachs banker in London, is unlikely to back away from the investment bank – it would be like “admitting that your baby is ugly,” says Octavio Marenzi, chief executive of Opimas, a capital markets consultancy.
Cryan has made some moves to cut costs and signal a step away from the Anglo-Saxon investment bank model – most notably by scrapping bonuses for senior staff in 2016 as it tried to hold on to some cash. The bank may be considering further cuts to the trading division, which has underperformed peers, according to Bloomberg.
The cost cutting has not gone far enough, says Marenzi, with a “fairly undisciplined approach” evident particularly in the technology operations arm, a key issue for Cryan’s replacement.
The external names reportedly approached by Achleitner – Goldman’s London investment bank head Richard Gnodde, Unicredit boss Jean Pierre Mustier and Standard Chartered chief Bill Winters – suggest Deutsche Bank will continue to shoot for the investment banking moon. The analysts’ favourite if they go for an internal hire is Marcus Schenck, the co-head of the corporate and investment bank, and another Goldman alumnus.
Either way, impatient investors will be hoping Achleitner resolves the trouble at the top by the time of the bank’s annual general meeting on 24 May.