Deutsche Bank Reaching Critical Mass

British banker John Cryan's harsh austerity cure for Germany's largest financial institution risks turning many top managers against the new chief executive, insiders claim. That could complicate his turnaround plans.
Some shareholders in Deutsche Bank are beginning to think that designated CEO John Cryan is not going far enough, fast enough to right Germany's top financial institution.

The mood at Deutsche Bank is lousy. New boss John Cryan and his critical ways are to blame.

The deep wrinkles on his forehead and dark circles under his eyes are almost his trademark. And some London investment bankers have given him the nickname “Mr. Grumpy.”

But Mr. Grumpy doesn’t have to look too hard to find things to worry about. Last week, the bank reported a record €6.7 billion ($7.3 billion) loss.

Investors are appalled, Deutsche Bank's share has plunged 21 percent since the start of the year, and many employees are shocked at the gravity of the situation. "Everyone knew that it would be bad, but this bad?" asked one, who declined to be named for fear of their job.

Most employees are working hard, despite external circumstances, to move the company forward again, and then they hear that they’re earning too much. That clearly hurts their willingness to go that famous extra mile. Stephan Szukalski, President, Banking Union DBV

Amid the bitter harvest of restructuring, Mr. Cryan tried on a new role Friday in Davos at the World Economic Summit: optimist.

At a large private party in elegant Belvédère hotel, the manager appeared unusually jovial, guests said. His head of communications had written him a speech, but he misplaced it, Mr. Cryan joked. Then he spoke about the figures for the fourth quarter: It’s bad, he said, but the bank will survive, and everything is on track.

The roughly 100,000 employees of Deutsche Bank would be pleased to hear such an upbeat message, but would they believe it? Many have grown leery of hearing from Mr. Cryan at all.

Just this past week he wrote: "We expect the next two years to consist of hard work, burdened by the costs of restructuring the bank and making much-needed investments." The employees are used to this kind of brutal assessment now. The business model? Out-of-date. The IT systems? Obsolete. The corporate culture? Lacking.

 

Deutsche Bank in Figures-01

 

The restructuring specialist has been on the job for just six months, but there’s already a growing disillusionment.

In their heart of hearts, most bankers know that Mr. Cryan, with his unsparing analysis, is right and that there is no way around his strategy of making operations leaner.

But it is hard to accept the new reality. Yesterday the bank was one of the elite German companies, with an extra helping of self-confidence.

Today it’s just another victim of post-financial crisis stress syndrome in need of overdue downsizing; one that inspires not schadenfreude but pity from competitors.

And Mr. Cryan’s relentless fault-finding doesn’t make the adjustment any easier. The relationship between the new CEO and his bankers had begun so promisingly.

The reclusive Mr. Cryan often comes across as pallid, tired and a bit grumpy. This didn’t prevent most German bankers from embracing the new boss this past summer when he replaced troubled Anshu Jain, the high-flying investment banker unwilling to acknowledge that the salad days were over.

Back then, Mr. Cryan’s plain-spoken manner was well-received.

"At last, no more lofty promises, which everyone knew would never come true anyway," said one banker, who declined to be named.

 

Quelle: Bloomberg
The new Deutsche Bank CEO is rarely seen in public, and when he is, he's not usually smiling. Here, John Cryan appeared on a panel last Wednesday with Christine Lagarde, managing director of the International Monetary Fund, at the World Economic Forum summit in Davos, Switzerland.

 

The glaring contradiction between Mr. Jain’s upbeat mantra of magically leading the bank back into the top five in the world, and the less-than-rosy reality, had led to frustration and apathy.

Mr. Cryan’s approach was refreshing, though it was clear his reforms would lead to job cuts. In all, 9,000 jobs are to be lost, 4,000 of them in Germany.

Postbank, a retail bank based mostly in the nation’s post offices, will be split off and, by the end of 2017, the bank will close some 200 of its 700 branches.

Mr. Cryan even plans cuts in the institution’s sacred cow — investment banking. The workforce had expected this but the mood may still turn ugly. Many fear Mr. Cryan’s constant criticism has become a self-fulfilling prophecy – he is bad-mouthing the bank too much and alienating its customers.

Many fear Mr. Cryan’s constant criticism has become a self-fulfilling prophecy - he is bad-mouthing the bank too much and alienating its customers.

The schism between boss and employees began on November 23, 2015. Mr. Cryan crept through a side door on this Monday afternoon to his place in the front row of the auditorium at Goethe University in Frankfurt, patiently waiting to speak at a conference on ethics and culture in the financial industry.

His words on stage were anything but subtle. Seven years after the financial crisis, banks still haven’t reined in their culture of greed, Mr. Cryan said.

“Compensation is still too high,” Mr. Cryan said. “We’ve just paid people too much across the board.” With these words, the new boss managed to turn a wide swath of Deutsche Bank employees against him, from the low-ranking accountant in Frankfurt to the highly paid investment banker in London.

A few days after Mr. Cryan’s comments, the union Verdi circulated a leaflet: “More profit through lower salaries for regular employees – is that the culture change in the banking sector?”

Other employee representatives complained that Mr. Cryan’s austerity rhetoric was undermining motivation.

“Most employees are working hard, despite external circumstances, to move the company forward again, and then they hear that they’re earning too much,” complained Stephan Szukalski, the president of the DBV banking union. “That clearly hurts their willingness to go that famous extra mile.”

 

Deutsche Bank Takes Its Losses-01

 

In investment banking, where the biggest bonuses are paid, resentment is on the rise. And not just because the bank is restructuring and middle managers will be cut, but because of gloomy prospects for bonuses.

There’s fear that Mr. Cryan could slash the premium pot by up to 30 percent.

“Many layoffs and lower motivation among those who remain: It’s no wonder that our earnings slump in investment banking,” said one banker.

In fact, the bank appears to be getting weaker, not stronger, in its daily business. Even without high depreciation for new legal risks and restructuring, the bank apparently operated in the red in the fourth quarter, mainly because of an ongoing slump in investment banking.

The rumbling isn’t restricted to middle management. Mr. Cryan and his chief overseer, Paul Achleitner, vigorously vetted the board and the second management tier.

In the shakeup, his predecessor Mr. Jain’s cronies had to go. The new boss brought in his own crew with new ideas about how the bank should be run. Managers regarded until recently as essential were suddenly unnecessary.

After only 20 months, Karl-Georg Altenburg left the bank. The former boss of JP Morgan Germany was supposed to improve Deutsche Bank’s domestic market in investment banking, but revenue dropped by a third in 2015.

A few days ago, it was announced that James Dilworth, a top manager in asset management, was also leaving. Deutsche Bank had poached the American from Allianz Global Investors less than a year ago, in early 2015.

 

 

"John Cryan has the most difficult job of all," said the chief executive of another major bank, who declined to be named.

A Deutsche Bank employee in London admitted one should not expect the new boss "within a few months to correct what was going wrong for many years."

But employees, analysts and investors want to know how Deutsche Bank will dig itself out of its hole. They want to know how the bank plans to make money going forward and what it will look like after the overhaul is finished.

Instead, London bankers are describing a kind of management “paralysis.” Decisions are being put off, they say, because it’s not clear how Mr. Cryan plans for things to be at all levels.

Since Mr. Cryan’s appointment, the bank’s share price have plunged 40 percent. It’s as if the bank and its new boss can’t do anything right. But that’s not entirely true; at least the party in Davos was a success.

The food served at the party was the best served anywhere during the World Economic Forum, one guest said.

 

Laura de la Motte covers banks and finance for Handelsblatt in Frankfurt. Michael Maisch is deputy chief of Handelsblatt’s finance desk. Daniel Schäfer heads Handelsblatt’s finance section. Katharina Slodczyk works in Handelsblatt’s London bureau. To contact the authors: [email protected],  [email protected],  [email protected],  [email protected].