John Cryan has only been at the helm of Deutsche Bank for about six months, yet on Thursday he made clear that the buck already stops with him.
“I feel personally responsible,” Mr. Cryan, chief executive since July of last year, said of the bank’s record €6.8 billion loss for 2015.
In a bleak fashion that has become characteristic of the British-born banker, Mr. Cryan spent a press conference Thursday warning in stark terms that things would get worse at Deutsche Bank before they get better.
Deutsche Bank’s brand, he acknowledged, has taken a serious hit over the past years, and may even have cost it some business, as Germany’s largest bank has had to spend more than €10 billion settling legal disputes and begun gutting many of the bank’s operations around the world.
“The Deutsche Bank brand isn’t resonating so readily with clients,” he told reporters, as he presented the bank’s annual results in Frankfurt. "It’s hard to stand up and smile a lot, and give much of a vision for the bank," he added.
The ongoing legal cases, a share price that is nearing a record low, and cuts to bonus payments were also impacting moral within the bank, he said. For shareholders there was bad news too: Dividends, which were suspended for 2015, will probably not be paid out in 2016 either.
Sometimes I go home in the evening and I say to my wife, ‘I wish that people would think I had some talent for actually running a company and not just cleaning it up.' John Cryan, Deutsche Bank CEO
Investors responded to Mr. Cryan's pessimism by continuing a sell-off that has taken on a life of its own since the start of this year. By 3 p.m. local time the share price was down more than 4 percent to €16.39, making it the worst performer on Germany’s blue-chip DAX. Shares are down more than 20 percent in the last month and down 40 percent in the last six months.
It’s a bleak picture that Mr. Cryan took pains to assure would be temporary. He pleaded with the bank’s staff to weather the storm another one or two years. By 2018, the bank hopes that most of its legal cases, as well as a massive restructuring effort, will finally be behind it.
One reason for the investor sell-off has been speculation that Deutsche Bank might need a capital increase to absorb its many one-time costs. Mr. Cryan on Thursday ruled this out, but analysts are not so sure. The bank currently has a core capital ratio of 11.1 percent, but regulators will require it to raise its reserves to 12.25 percent by 2019. Mr. Cryan is targeting 12.5 percent from 2018 – a much smaller buffer than many other global banks.
Regardless, the bank is in for hard times. Mr. Cryan warned that Deutsche Bank could face "significant" additional legal costs over the course of 2016, though lower than the €5.2 billion the bank paid or set aside in 2015. In the last four years, more than €12 billion has been sunk into legal costs and another €5.5 billion has already been set aside to settle ongoing cases.
Investment banking revenues and profits, once the biggest source of earnings, will also decline as the bank slims down its operations. The bank earlier Thursday said its investment banking activities lost €1.2 billion, or $1.3 billion, before taxes in the fourth quarter of last year amid write downs and a loss of market share. Revenues fell 30 percent to €2.1 billion. Analysts from Citigroup called it an "alarming collapse" worse than many of its peers.
Deutsche Bank slightly revised higher its full-year 2015 net loss to €6.8 billion from €6.7 billion announced in preliminary figures last week. The bank is in the midst of cutting 15,000 jobs, winding down some investment banking operations, spinning off its retail banking arm Postbank and closing operations in 10 countries.
Mr. Cryan said the bank's restructuring effort would cost another €1 billion this year. The bank and its staff should be prepared for “toughing out 2016, which we know will not be a successful year from the perspective of showing financial results.”
The shake-up is designed to return the bank to profitability as it digs out from a mountain of lawsuits and legal costs that have dogged the institution since the global financial crisis in 2008.
Many of the bank's current problems originated in its investment banking unit. Last April, it agreed to settle an interest rate-rigging scandal and accept a fine of $2.5 billion imposed by U.S. and British regulators, one of the largest ever imposed on a bank.
"The lowering of our cost base remains our biggest task for this year and in the coming year," Mr. Cryan said. He warned that the bank's cost base wouldn't be reduced until 2017 at the earliest. Key investments were needed first, before the bank could return to profitability.
Deutsche Bank’s investment banking unit was a big contributor to profits before the financial crisis of 2008-2009. In the fourth quarter of 2014, investment banking generated a €323 million profit before taxes.
Revenues from investment banking fell 30 percent in the fourth quarter to €2.1 billion. For all of 2015, Deutsche Bank's investment banking operations lost €2 billion before taxes, compared with a €2.9 billion profit in 2014.
There is some reason for optimism, however. Other divisions of the bank, including asset management and global transaction banking, which includes areas like trade financing, performed well over the course of 2015. Mr. Cryan said he continues to see these divisions as growth areas. When it comes to investment banking, he expressed confidence that a slimmed-down version of the division could return as a profit-maker for the bank in future years.
For Mr. Cryan, these positives form the basis of an outlook for Deutsche Bank. While he painted a bleak picture of the bank for this year, he said he remains confident that Germany's largest bank can find a niche to grow again in the future.
"What we’re very best at is being an international bank and the way we serve our German clients in the most distinctive fashion is internationally," he said.
Will there be another annual loss for 2016? Mr. Cryan said he doesn't think so. The bank's worst one-time costs – including more than €5 billion in writedowns of bad assets – are probably behind it. The bank's chief financial officer Markus Schenk said he "wouldn't rule out" a loss, however.
Mr. Cryan came to Deutsche Bank with a reputation as a trouble shooter, credited with helping to bring Swiss bank UBS out of the financial crisis. It’s a reputation that has led some to speculate that the British banker might leave Deutsche Bank in a few years, even if his leadership of the bank proves a success.
Mr. Cryan, however, suggested that he might enjoy a quieter existence as a run-of-the-mill CEO if the turnaround he is trying to engineer truly works out.
“Sometimes I go home in the evening and I say to my wife, ‘I wish that people would think I had some talent for actually running a company and not just cleaning it up,” he quipped.
“Not every day is easy, but we can see the light at the end of the tunnel,” he added.
Christopher Cermak is an editor with Handelsblatt Global Edition, covering finance and economics. To contact the author: [email protected]