HANDELSBLATT EXCLUSIVE A Strategic Delay

Chief Executive John Cryan has decided to hold back Deutsche Bank’s new restructuring strategy until international capital rules, known as Basel IV, take shape. The move could frustrate investors.
Waiting for Cryan. Investors are pushing the Deutsche Bank CEO to announce a more ambitious strategy.

Investors pushing for a new strategy at Deutsche Bank will have to wait even longer to see what Chief Executive John Cryan has come up with.

Mr. Cryan has decided to hold off any major strategy announcements until international negotiators reach the outlines of an agreement on new capital rules, known as Basel IV, according to information obtained by Handelsblatt.

Investors were hoping that Mr. Cryan would lay out a new strategy for the bank when he presents its 2016 earnings report in early February. Much of Deutsche Bank’s strategy, however, will depend on the rules adopted under Basel IV, according to Handelsblatt sources in the financial industry.

Negotiations between U.S. and European regulators have gotten bogged down over a dispute about what model banks should use to calculate their capital ratios. The United States wants to see a stricter model that would require many European banks such as Deutsche to maintain greater reserves.

Despite the rumors, Deutsche has no plans to withdraw from the U.S. market or shut down certain investment banking operations, the sources said.

Mr. Cryan, who is expected to report another loss for 2016, is aiming to finalize his strategy by Deutsche’s annual shareholders meeting on May 18.

Germany's largest bank is already in the middle of a deep restructuring first announced under the bank's previous leadership in 2015. Mr. Cryan tweaked the strategy after he took control of the bank in July of that year, but many investors have been clamoring for a broader change of course.

Those calls only grew louder during a tumultuous 2016 for the bank, which watched its share price plunge to record lows in the fall, even prompting some speculation of a state bailout, before recovering later in the year. Deutsche continues to face a series of legal risks and doubts about its long-term profitability,

According to Handelsblatt sources, the new strategy will mainly focus on reducing the bank’s complexity by offering fewer products to fewer customers. Deutsche has already capped its trade in debt and equity at 3,400 clients after business with many customers proved unprofitable.

Despite the rumors, Deutsche has no plans to withdraw from the U.S. market or shut down certain investment banking operations, the sources said.

But Mr. Cryan is weighing whether or not Deutsche should abandon the long-delayed sale of its Postbank subsidiary, instead fully integrating the unit after all. Deutsche and Postbank could unite under a holding company, which would reduce costs and make refinancing cheaper.

The full integration of Postbank, however, would result in thousands layoffs in addition to the 9,000 full-time job cuts that Deutsche has already announced.

Stricter regulations under Basel IV could pose a problem for Deutsche Bank.

Stricter regulations under Basel IV could pose a problem for Deutsche Bank, which has struggled to maintain its capital buffers amid massive losses and costly legal fiascoes. Financial analysts expect Deutsche to report a €790 million loss for 2016 after suffering a record €6.8 billion loss the year prior.

There was speculation that Deutsche might need capital injection after the U.S. Justice Department threatened the bank with a $14-billion fine for trading junk mortgage-backed securities in the run-up to the 2008 financial crisis. Ultimately, Deutsche was able to settle for $7.2 billion.

In the third quarter of 2016, Deutsche had a capital ratio of 11.1 percent, which is expected to rise to 11.6 percent after the bank completes the sale of Deutsche’s stake in the Chinese bank Huaxia.

Mr. Cryan wants to boost Deutsche’s capital ratio to 12.5 percent by the end of 2018, though he has repeatedly said that Deutsche won’t ask investors for more money.

According to Handelsblatt’s sources, however, the bank hasn’t ruled out a capital increase.

Deutsche’s share price has recovered since the fall. Even if the bank offered a 30-percent discount, it could still potentially pull together an additional €8.5 billion in capital from investors.

 

Daniel Schäfer leads Handelsblatt's finance team, Michael Maisch is Handelsblatt's deputy finance editor and Yasmin Osman is a senior financial correspondent for Handelsblatt. All are based in Frankfurt. To contact the authors: [email protected]tt.com, [email protected] and [email protected] 

Correction: An earlier version of this story reported the bank's annual shareholders meeting on March 18. It is scheduled for May 18.