New Pastures Deutsche Bank Exodus Gathers Pace

The exodus of top managers at Deutsche Bank is continuing at an alarming rate under the new regime. Yet some analysts believe it is not as bad as expected, given a lack of other jobs available in the troubled sector.
Is it time to leave Deutsche Bank?

Deutsche Bank is losing increasing numbers of managers amidst of its biggest crises in its history.

The latest, Joachim Häger, head of the bank's wealth management operations - i.e. advice for the super-rich - in Germany, announced internally on Wednesday that he is planning to leave after 25 years. He joins a growing list of high-ranking managers who have recently decided to quit Germany's largest bank, under the leadership of the new chief executive John Cryan.

There are various reasons for the exodus. The Frankfurt-based bank is going through a phase of extensive restructuring in which it is scaling back certain areas of business, in some cases radically. The management, or executive, board has also been almost completely overhauled. Anyone who does not fully support the new management may find they have less chance of promotion.

Moreover, Mr. Cryan has cut bonuses for all staff by 17 percent following a loss of €6.8 billion ($7.7 billion) in 2015. Bonuses are unlikely to go back up again anytime soon, as 2016 and 2017 will be transition years in which restructuring will come before profit, according to Mr. Cryan.

The departure of managers always sends out a negative signal to customers of the bank and can lead to a decline in business. Michael Seufert, Analyst, NordLB bank

Managers who have recently departed include Georg Hansel from the bank's equity issues business and James Dilworth from asset management. Mr. Dilworth joined Deutsche Bank just one year ago, having been wooed away from fund company Allianz Global Investors. He was a member of the top level of management in the asset & wealth management division, but quit after the decision to split the two departments left him with a more junior role.

"More people will go," says a long-standing member of the staff council, echoing other sources from within the bank as well as recruitment consultants.

This is likely to particularly hit the bank's bond activities, a business area in which further confidants of former co-chief executive and bond trader Anshu Jain are preparing to depart. It was for a decade a powerful engine driving the investment bank, but began to splutter some time ago and is now a focal point of the planned cuts. "The bond traders were used to playing in the global league with JPMorgan and Goldman Sachs. Now cuts are being made everywhere and bonuses are being slashed. That's too painful for some people," one recruitment consultant says.

A Record Loss for Deutsche Bank-updated feb 1 2016

 

The bank is emphasizing that a not inconsiderable proportion of the top managers who have left have done so because they were overlooked for promotion or even downgraded. One example of this is Swiss-born compliance expert Nadine Faruque, who left Deutsche Bank in March after about a year. Ms. Faruque had been regarded as a contender for the management board, but was later asked to act as assistant to Sylvie Matherat after the latter joined the board as chief regulatory officer.

Inside sources at the bank have also underlined that the number of unwanted departures is actually much lower than initially feared. One reason could be a lack of alternative options, as many rival banks - from Japan's Nomura to U.S. competitor Goldman Sachs - are also cutting jobs in these areas. In the investment bank at least, the rate of departures is still said to be within the "normal" average of 5 to 12 percent annually.

But the hemorrhaging of managers is dangerous for Deutsche Bank. "The departure of managers always sends out a negative signal to customers of the bank and can lead to a decline in business," warns Michael Seufert, an analyst at German bank NordLB.

Mr. Cryan admitted back in January that Deutsche Bank had lost staff in its equities trading division and that its market share had fallen as a result.

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Personal relationships play a particularly important role in areas where the focus is on advice, such as investment consulting or mergers and acquisitions. "This is where profits are liable to fall fastest if key employees leave," Mr. Seufert says.

This will also be reflected in the bank's results for the first quarter, which according to Mr. Cryan are set to be weak. While U.S. rival JPMorgan reported an improvement in business for March when it presented its first-quarter figures on Wednesday, earnings at all banks fell in January and February owing to turbulence on the markets.

Despite the recent staff exodus, inside sources anticipate that there will not be quite so many top executives leaving Deutsche Bank from now on. The main focus in the coming months will be on plans to cut less senior jobs. Some 9,000 are expected to go.

Meanwhile, the bank has made inroads into another of its problem areas: its legal woes. It has reached an out-of-court settlement with Deutsche Schutzvereinigung für Wertpapierbesitz (DSW), a German shareholders' association, as part of which a special independent audit will be conducted into the bank's risk control systems.

The agreement concludes a legal dispute that had dragged on for almost a year. Klaus Nieding, vice-president of DSW, says the audit will clarify whether the bank's current risk control systems are adequate "to successfully prevent a recurrence of cases like the scandal relating to manipulation of the Libor interbank interest rate."

Sources close to Deutsche Bank, which has confirmed the audit, say that it wants to end the dispute and sees the audit as an opportunity to strengthen shareholder trust.

Germany's largest bank has been hit by a series of scandals in recent years and has had to pay around €10 billion in fines since 2010, with several cases still ongoing.

 

Laura De La Motte is an editor at the Handelsblatt finance desk and a specialist banking correspondent. Daniel Schäfer is head of Handelsblatt's finance pages and is based in Frankfurt. To contact the authors: [email protected], [email protected]