FRANKFURT: John Cryan, co-chief executive officer at Deutsche Bank, is undertaking the biggest management shakeup in more than a decade and splitting the investment bank as he prepares to scale back the trading empire built by his predecessor.
Colin Fan, 42, the co-head of the investment banking and trading unit, was to resign effective Monday while Michele Faissola, 47, a former senior banker at the fixed-income business who now leads asset and wealth management, will leave after a transition period, Deutsche Bank said Sunday. Among other changes, Stefan Krause, 52, a longtime executive who currently oversees transaction banking, will depart at the end of the month.
Cryan, 54, replaced Anshu Jain in July after surging litigation costs and tougher regulatory demands squeezed profitability and eroded investors’ trust. The management changes may ease Cryan’s efforts to reshape the bank and rebuild relations with regulators after a record $2.5 billion (Dh9.2 billion) settlement with US and UK authorities for manipulating interest-rate benchmarks.
“John is trying to create a bank in his image and the people who are leaving are people who were building it in Anshu’s image,” said Christopher Wheeler, a banking analyst at Atlantic Equities LLP in London. “It’s a seminal moment in rebuilding the Deutsche Bank franchise.”
Seven years after the financial crisis, Europe’s global banks are struggling to adapt to higher capital requirements, rock-bottom interest rates and diminished opportunities for growth. Credit Suisse Group AG’s new CEO, Tidjane Thiam, will reveal on Wednesday his plans to prune the investment bank while expanding in Asia and wealth management. Barclays Plc, BNP Paribas SA and Standard Chartered Plc are also scaling back operations.
“All of these banks are looking at their models going ‘you know what, we were too optimistic on revenues, they’re not coming back,”’ said Conor Muldoon, who helps manage about $40 billion, including shares of Credit Suisse, Barclays and UBS Group AG, at Causeway Capital Management. In addition, as rising capital requirements drive down return on equity, a key measure of profitability, the only lever they have is to change the scope of the bank and remove costs, he said.
As part of the reorganisation, Deutsche Bank will abolish its 19-member group executive committee as well as 10 of its 16 management board committees.
“We want to create a better controlled, lower cost, and more focused bank that delivers long-term value to shareholders,” Cryan said in a statement. He’s scheduled to present his strategy to reduce expenses and boost profitability on October 29.
“Deutsche Bank rarely underwent such a fundamental reorganisation in its history,” Chairman Paul Achleitner said in the statement. “This also requires tough decisions.”
Jeff Urwin, 59, who joined Deutsche Bank from JPMorgan Chase & Co. as Fan’s co-head earlier this year, will oversee a newly formed corporate and investment bank unit that will include transaction banking. Garth Ritchie, 47, the head of equities, will run a separate markets unit that will encompass both stock and bond trading. Both men will join the management board at the beginning of next year.
Urwin had moved to JPMorgan when it acquired Bear Stearns Cos in 2008, which he had joined in 1996. He was also the former head of global emerging markets at Lehman Brothers Holdings Inc. in New York.
Ritchie has been with Deutsche Bank since 1996. He was named co-head of the equities business in late 2008. The company’s revenue from trading stocks and related securities rose 7.1 per cent to 2.9 billion euros ($3.3 billion; Dh12.1 billion) last year from its level in 2009. Revenue from trading fixed income and currencies slumped 30 per cent to 6.84 billion euros over that period.
Several investors had expected Cryan to expand a plan Jain presented in April to cut assets at the investment bank by as much as 150 billion euros, or 17 per cent, by the end of 2018. Kian Abouhossein, an analyst at JPMorgan, said last month that Cryan should get rid of another 50 billion euros of assets at the unit.
“They are going to have to do at least what they said they are going to do on the leverage target and I would expect that number to come in somewhat higher,” said Jonathan Fearon, who helps manage 302 billion pounds ($410 billion) at Standard Life Plc in Edinburgh. “The key though is going to be making return on equity. The only way you’re going to get that RoE up is by taking costs down.”
Still, Cryan may not make drastic cuts to debt trading, Deutsche Bank’s traditional strength, even though capital demands are growing more stringent, said Wheeler.
“Will he throw the baby out with the bathwater? I don’t think so, because I don’t think the equities business is strong enough to shoulder the kind of revenue growth these guys need to keep shareholders happy,” he said.
Deutsche Bank said earlier this month that it expects to book a 5.8 billion-euro writedown as stricter capital requirements reduce the value of its investment bank, resulting in the largest quarterly loss in at least a decade. The company said it may also scrap its dividend for the year.
The bank is considering cutting 8,000 jobs, in addition to those that will be eliminated through the sale of one of its consumer bank units, a person with knowledge of the matter said last month. Deutsche Bank announced plans in April to divest Bonn-based Deutsche Postbank AG, which employs about 15,000, through a trade sale or by selling shares to the public.
Quintin Price, 54, the former head of Alpha Strategies at BlackRock Inc, will oversee asset management and join the board. Private wealth management will be moved to a unit which caters to consumers and smaller companies, which is run by Christian Sewing. Fabrizio Campelli, the head of strategy at Deutsche Bank, will be in charge of wealth management. Faissola merged the bank’s asset and wealth management businesses in 2012.
Stephan Leithner, who rose through the ranks of the company’s corporate finance unit, will step down from his position as the board member responsible for compliance and CEO for Europe excluding Germany and the UK. He’s joining private-equity firm EQT as a partner in Germany.
Leithner and Faissola were among managers criticised by German regulator Bafin in May for the bank’s handling of interest-rate rigging. Bafin said management failed to prevent and adequately address attempted rigging. Deutsche Bank has said reviews found no current or former members of the management board were involved in or aware of the misconduct.
“Tighter management control should minimise the probability of another scandal,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “They are being forced by regulatory pressure, shareholder pressure and they want to restore their reputation. And they have certainly taken a big hit.”
Leithner’s responsibilities will be split between Sylvie Matherat, head of government and regulatory affairs, and Karl von Rohr, the chief operating officer for regional management. Compliance head Nadine Faruque will report to Matherat, who joined last year from the French central bank, where she was deputy director general and counted regulation and financial stability issues among her responsibilities.
Chief Information Officer Kim Hammonds will succeed Henry Ritchotte as chief operating officer when he steps down at year- end, and is expected to join the board later. Matherat and Hammonds, who joined from Boeing Co. in 2013, would be the first women on Deutsche Bank’s board since Ellen Ruth Schneider-Lenne’s death in 1996.
