Anshu Jain had a clear vision when it came to the future of the financial industry. The former Deutsche Bank co-chief executive was convinced that a handful of large financial institutions would dominate the global financial sector. His goal: to keep Deutsche Bank part of this exclusive club.
When he took over the bank in 2012, Mr. Jain set a goal of becoming one of the top five in all key areas of investment banking. Overall, he set his sights on the number-three spot worldwide among investment banks – attacking the top dogs on Wall Street like Goldman Sachs and JP Morgan.
It was an ambitious goal that suited the successor to Josef Ackermann, Deutsche Bank’s long-time chief executive, who helped set up the bank’s Wall Street operations and in the last decade succeeded in turning Germany’s largest bank into a major global investment banking player.
The Jain-Ackermann era is now a thing of the past – Mr. Jain was replaced as co-chief executive in July by John Cryan, a mild-mannered British banker who has set about returning the bank to its roots, reducing its global ambitions. He's even cutting back on investment banking – long considered off-limits – to protect the bank's capital base.
The shift is borne out in the numbers: Deutsche Bank's performance in investment banking was sobering at best in 2015. Joining the top five seems an increasingly distant goal.
In the past, Deutsche Bank tried to buy itself a higher position on the rankings of top investment banks by engaging in unprofitable deals....Deutsche Bank can no longer afford to pursue this approach.
Fees for investment banking services plunged by 20 percent in the last 12 months. That compares to average losses of only 8 percent for the industry as a whole, according to an annual review by the Thomson Reuters information service.
Deutsche Bank's losses were more serious than those of any other bank in the global top 15. The same applies to Deutsche Bank's global market share, which declined by 0.6 percent to about 4 percent.
The silver lining is that Deutsche Bank has protected its spot as the top-ranked European investment bank. That’s because most European rivals also suffered double-digit revenue losses on the year (see graphic).
Globally, Deutsche Bank ranked sixth in terms of revenues, the same as in 2014. U.S. institutions filled all top five slots, led by JP Morgan.
The decline was seen across the board. In consulting for mergers & acquisitions – considered the supreme discipline of investment banking – Deutsche Bank slipped by two slots to 10th place in the 2015. In its equities business, the bank also moved two rungs down the ladder to seventh place. And in the management of bond purchases, one of its strong suits, Deutsche Bank fell out of the top five, dropping one slot to sixth place. Only in the lending business did the German industry leader manage to defend its bronze medal.
Still, Deutsche Bank was hardly the only bank to struggle in 2015. Investment banking on the whole suffered a bad year. While U.S. banks did better than their European rivals, they too suffered losses. Of the top 10 banks, only Goldman Sachs managed to post an increase in investment banking fees over the year.
For most banks, the weakest areas were equities and the bond business – especially in Europe. Mr. Hässler said low volatility and a lack of hedging in rate markets pushed down investment banking fees.
By contrast, the mergers and acquisitions business is the one area that is still booming, and analysts see more potential here in 2016. Holder Bross, chairman of Bank of America's operations in Germany, said Chinese firms in particular will continue to play a growing role in the acquisitions business.
One reason for the dominance of Wall Street investment banks is that they emerged from the financial crisis more quickly than their European rivals. Experts estimate that the Americans have gained about 5 percent in market share worldwide, in terms of fees.
"At the same time, they also improved their business models more quickly," said an industry insider, who declined to be named.
That early restructuring allowed Wall Street to once again go on the offence in 2015. In contrast, Deutsche Bank turned inward last year, according to one competitor.
"The bank is in the midst of restructuring its investment banking division, and this is reflected in earnings and market share. The process could take another year or two," said Phillipp Hässler, an analyst with Equinet.
After Mr. Jain was ousted following a shareholder revolt in the summer, the new chief executive, Mr. Cryan, announced a radical downsizing program on the bank in October. It marked his own take on a restructuring program started by Mr. Jain, dubbed "Strategy 2020," and includes eliminating some 9,000 full-time jobs, about half of them in Germany, and another 6,000 contractor jobs.
Mr. Cryan also intends to streamline the bank’s investment banking operations. The new chief executive has divided the investment bank's core business into two parts: a financing and consulting bank headed by Jeff Urwin, which is responsible for classic investment banking, and a separate division that includes the more volatile trading business, headed by Garth Ritchie.
Returning to its roots doesn’t mean the bank is becoming more German, however. There was no room for a prominent German manager in Mr. Urwin's new leadership structure.
After only 20 months in the job, Karl-Georg Altenburg left the bank again. The former head of JP Morgan’s German operations had been hired to revamp Deutsche Bank's domestic business. While the bank did defend its top position in the domestic market in 2015, revenue declined by a third and the investment banking division also lost market share.
Even though only a handful of top investment bankers have left Deutsche Bank so far, the restructuring has already created a sense of uncertainty that has affected business, said one insider.
Trying to compete with the biggest had some major downsides. In the past, Deutsche Bank tried to buy itself a higher position on the rankings of top investment banks by engaging in unprofitable deals.
A better positioning was intended to bring in more business, explained the insider. The bank continued to adhere to this belief even after other large investment banks like Switzerland's UBS – which has pivoted to its strong suit in asset management – abandoned the idea.
Now, according to the insider, Deutsche Bank can no longer afford to pursue this approach, nor does it wish to do so under its new chief executive.
Mr. Cryan, who was part of the crew that turned around UBS, has recognized that Deutsche Bank can no longer offer everything for everyone, especially in light of increasingly strict regulations in investment banking. His motto is to only pursue deals that are truly worthwhile.
That doesn’t mean he’s giving up the fight in all areas. When he unveiled his strategy in October, Mr. Cryan made it clear that he was sticking to the goal of expanding market share in the consulting and equities business – even though this does not reflect reality in 2015.
The bank was unwilling to comment on the sharp decline in investment banking revenues.
Laura De La Motte, Michael Maisch, Peter Köhler and Robert Landgraf cover finance for Handelsblatt, working out of Frankfurt. To contact the authors: [email protected], [email protected], [email protected] and [email protected]