Macaskill on Markets: Aspiration 2020
Deutsche Bank co-CEO John Cryan took a clear-headed approach to most of his management overhaul in October. There are unresolved issues in the global markets unit that remains the bank’s revenue engine as well as the source of most of its reputational problems, however.
Deutsche tries to right the ship by jettisoning Fan and Faissola
It must have been a simple decision for Cryan to dismiss the two remaining senior lieutenants of former co-CEO Anshu Jain. The departure of co-head of corporate banking and securities Colin Fan and asset management head Michele Faissola signals a clear break with the former regime. It will also make it easier for the bank to argue that expected future regulatory and litigation settlements are payments for the sins of former executives, not an ongoing cost of the Deutsche Bank way of doing business. The bank is sticking with Strategy 2020 as a title for its recovery plan but has made key new senior appointments that embody the aspirations of the bank, or represent an attempt at reputation renting, to be less charitable.
Jeff Urwin, who will run a combined corporate finance and transactional banking group renamed corporate and investment banking, is a veteran of JPMorgan, the bank that emerged from the 2008 crisis with a leading share of investment banking revenues.
Quintin Price, the new head of asset management at Deutsche Bank, joins from BlackRock, which was another winner from the 2008 turmoil and has since become the biggest fund manager in the world, with $4.5 trillion under management.
BlackRock openly rents its reputation for probity and knowledge of market mechanics with its solutions business, and the appointment of Price, an experienced cross-asset investment manager, will boost Deutsche Bank’s asset management credibility.
Cryan also addressed one of the many glaring gaps between the stated targets of the former Deutsche Bank management team and their actual performance, in the form of the treatment of women employees.
Deutsche Bank makes a significant marketing splash around its sponsorship of the ‘Women on Wall Street’ initiative that celebrated its 20th anniversary last year and has become a global drive to help improve working conditions for women in finance.
Under Jain and Jürgen Fitschen (who is still technically co-CEO and ghost of German retail banking past until his departure next year), Deutsche Bank did not have a single woman on its management board or running any investment banking business, however.
Cryan has now tackled the former omission. Sylvie Matherat, a former Banque de France director, was appointed chief regulatory officer with a place on the management board, while Kim Hammonds, a former Boeing chief information officer, was appointed chief operating officer and is expected to join the management board within a year.
It seems a female head of a revenue generating business at Deutsche Bank is still some way off.
The appointment of Garth Ritchie as head of global markets is where the Cryan reform initiative may run into problems. Ritchie was not one of the fixed income sales and trading veterans who were closest to recently ousted co-CEO Jain. That inner cadre included Fan and Faissola, Rich Herman, who quit as global head of fixed income in May, and in the earlier years of the Jain ascendancy Rajeev Misra, a former head of credit markets.
Ritchie is an equities manager who was seen as a relatively safe pair of hands at the bank. After almost a decade with the firm, he became European equities head in 2005 and was promoted to global co-head of equities at the end of 2008.
In 2010 Ritchie became sole global head of equities when his US based co-head Rob Karofsky resigned, following a personal scandal.
There is a superficial appeal to Cryan’s decision to make an equities veteran head of the global markets division at Deutsche Bank. Equities businesses have been sharply outperforming fixed income sales and trading for investment banks this year. This is reflected in power shifts such as the recent appointment by Morgan Stanley of equities head Ted Pick to a new position as global head of sales and trading, and Goldman Sachs generated more revenue from equities than fixed income in the third quarter in a reverse from the historical norm.
Most of Deutsche Bank’s continuing regulatory woes stem from past misconduct in its fixed income businesses, which is another argument for putting an equities manager in charge of the markets division. Its equities group is far from spotless, however. One of the many investigations currently faced by Deutsche Bank is a probe of whether a reported $6 billion of equities mirror trades with Russian clients were designed to skirt money laundering regulations, for example.
And while Ritchie understands the byzantine internal politics of Deutsche Bank, he may struggle to overhaul the fixed income division that remains its core strength, scandals notwithstanding.
One of Colin Fan’s last managerial acts was to put in place a deeply confusing structure for fixed income managers in the wake of the departure of Rich Herman in May. This featured six product groups and an oversight committee managed by the head of an Asian business instead of one of the main trading hubs for the bank of London or New York, which seems almost comically impractical.
Given that John Cryan has publicly called for fewer management committees at Deutsche Bank, Ritchie will presumably hope to put in place a simpler structure for fixed income. He will be dealing with subordinates who are keenly aware that Deutsche Bank is much more highly rated by clients in fixed income than in equities, however, and may find that different managers took away different messages from their interaction with Fan.
The appointment of Sam Wisnia, a former Goldman Sachs partner, to run fixed income structuring in late 2014 and his subsequent appointment as global co-head of rates raised some eyebrows within Deutsche Bank, for example.
For many years, Deutsche aspired to emulate Goldman Sachs above all other competitors. From the practice of fostering internal competition with co-head roles to aggressive structuring of customer trades, the paramount goal was to match Goldman’s revenue generation, especially in fixed income.
Many assumed that this aim had been superseded by new market realities including increased regulatory oversight, a smaller global fixed income revenue pool and a need to consume less capital – a need that was particularly acute for Deutsche Bank. Conversely, Wisnia’s appointment looked like an attempt to pursue increased rates market share.
And an accidental temporary transfer of $6 billion to a hedge fund client by a junior foreign exchange staff member in the summer was a reminder that risk controls remain problematic across the fixed income division.
So while John Cryan is presumably sincere in his aspiration to change the way that Deutsche Bank does business, he may find that in the global markets group at least, the more things change, the more they stay the same.