Investors in Deutsche Bank shares may welcome a change in direction after the ouster of Anshu Jain, who steps down at the end of this month, and of his co-CEO Jürgen Fitschen, who will leave the bank after its AGM next year. They reacted badly to the recent restructuring announcement, which targets an unambitious return on tangible equity of 10% to be achieved by 2020, partly derived from unspecified costs savings.
Fairly or unfairly, investors criticize Jain for not cutting operating expenses sooner and harder as the costs of regulatory compliance have increased along with operational risk RWAs relating to the investment bank. The plan announced at the end of April to reduce capital allocated to the investment bank seemed to be too little too late.
|John Cryan, Deutsche Bank|
But what can investors expect from the new co-chief executive of Deutsche Bank, John Cryan, who takes over as sole chief executive next July?
Cryan has a strong reputation within banking circles, mainly for his work as chief financial officer turning around UBS after its state rescue in 2008. He was quick to see the need to run the bank on much higher levels of core equity capital so as to reduce the likelihood of any repeat of what had happened in the crisis.
It was notable when Euromoney interviewed the CFOs of leading banks two years after the crisis broke that Cryan’s was almost a lone voice calling for higher levels of capital while most of his peers, including Deutsche Bank’s Stefan Krause, warned of the unintended consequences of an over-zealous regulatory response to the crisis.
"We still feel that we need a lot more capital," Cryan told Euromoney in 2010, when the bank was running a 16.4% tier-1 capital ratio and 13% core capital. Cryan was targeting a 16% core capital ratio. His peers declared even 16% total capital far too much to generate a decent return on, never mind running that much pure equity as core capital.
“Our sense of needing much more capital is somewhat visceral,” Cryan told Euromoney. “This [UBS] is a company that lost SFr50 billion [$49.2 billion] over three years, that had to be supported by the national authorities. It was ignominious.
"We have been de-risking for two years and raised capital four times. Remember that we have a SFr1.5 trillion balance sheet; we are responsible for another SFr2 trillion of invested assets and another approximately SFr1 trillion of custodial and other client assets; we run three big pension funds and employ 64,000 people. What happened before must never happen again. Is SFr28 billion of core capital enough? We think it should be SFr45 billion to SFr50 billion."
This is a man who certainly gets it. It remains to be seen how quickly and sustainably he can boost Deutsche’s return on capital and close the big gap at which its shares still trade to tangible book value.
Two other things stand out about Cryan. This is a man who has also previously demonstrated a near visceral aversion to the limelight throughout an investment-banking career at UBS that saw him run the FIG team. Remarkably, he even managed to keep a low profile while advising ABN Amro on its subsequently notorious top-of-the-market sale to RBS, Fortis and Santander, two of which nearly collapsed in the aftermath. At least Cryan’s client got a good deal.
He shifted to advising UBS’s own board through the crisis, becoming CFO in late 2008. Former colleagues from those days suggest that Cryan took the job amid some unease and almost out of a sense of duty when the bank’s board asked him to take it on and no other credible candidates seemed willing to. Cryan was happy to work in the shadows, as he had so long done as a strategic adviser to other banks and to let then chief executive of UBS, Oswald Grübel, take much of the credit for saving UBS.
The other notable fact is that Cryan sets himself a term to get a job done and doesn’t linger. Cryan put a time limit on his time in the CFO job at UBS and it was no surprise to UBS colleagues that he departed in 2011, joining Temasek in 2012 as president for Europe. Most who knew him assumed that he would be looking for opportunities for Temasek to benefit from banking consolidation in Europe. But that is a trend that has been slow to develop. He did not hang around.
Cryan joined the supervisory board of Deutsche Bank in 2013 and presumably now knows the inner workings of the bank well. His time as a strategic adviser to other banks and to a troubled UBS suggests that he will have the vision needed in the new job. His time as CFO at UBS should have honed his instincts to spot the real trouble spots in the portfolio that dense bank accounting often obscures.
Nothing, however, will have prepared him for the very public scrutiny that now awaits the chief executive of the national champion bank of Europe’s leading economy as it struggles to clean a reputation tarnished by so many regulatory entanglements while appeasing shareholders. It is an oddity that his tenure has been announced a full year before he is due to take over as sole CEO. It remains to be seen if his is anymore than a stopgap appointment at the top of Deutsche Bank.