Deutsche Bank said to weigh trading cuts as CEO vows to stay on
Deutsche Bank is conducting a fresh review of its trading businesses, according to people familiar with the discussions, an overhaul that Chief Executive Officer John Cryan is pursuing to help restore profitability amid reports that the bank is seeking to replace him.
Cryan, who sought to quash rumors he may be ousted in a staff memo on Wednesday, is examining businesses where Europe's largest investment bank is trailing competitors to determine if it should try to win back market share or exit, the people said, asking not to be identified as the plans are private.
The future of the investment bank, the lender's largest unit by revenue, has been a central point of contention in Cryan's restructuring efforts since he took over in mid-2015. Investors' frustration with the lack of growth prompted Chairman Paul Achleitner to search for a successor to the CEO, people familiar said this week. Speculation about his position prompted Cryan to tell staff that he's "absolutely committed" to serving the bank and continuing his work.
"We need to demonstrate more visibly the excellent progress we are making in some many areas so that doubts about our bank fade away over time," Cryan wrote in the memo seen by Bloomberg and confirmed by the bank. "We need to focus on executing on the strategy that was agreed and signed off by both the management and supervisory boards," he wrote.
Senior executives plan to complete the review of the investment bank, dubbed "Project Colombo," within weeks, before deciding where to cut and where to invest, said two people. The U.S. operations are a particular focus, though the review stretches across the global trading unit, the people said. A spokeswoman for Deutsche Bank declined to comment.
As part of the investment bank review, cuts are being discussed at both big trading businesses — equities as well as fixed income, currencies and commodities — because they are expensive and haven't performed well, said one person. However, the extent of a potential retrenchment is unclear because many traders just got big bonuses in an effort to retain top performers, this person said.
It's also unclear how the search for a new CEO will affect the review. Cryan, in the memo, acknowledged the "destabilizing effect" that the "widespread rumors" are having.
"The fact that Cryan must write his own defense and doesn't get any backing from Achleitner is a sign of weakness for the CEO," said Florian Sauerburger, a portfolio manager at Aramea Asset Management, which owns Deutsche Bank stock. "Achleitner seems only to think about his own job."
Much of the prior cutbacks at the investment bank affected fixed-income trading, though revenue at the equities unit declined as well. The bank lost clients in late 2016 amid concerns about its financial strength. Revenue from trading has declined by about a third in the past two years.
Deutsche Bank's trading revenue has shrunk from 12.7 billion euros in 2010 — or about 44 percent of total income — to 8.7 billion euros or 33 percent last year as Cryan pivoted away from the bank's former focus on institutional clients toward corporate clients.
The CEO last year merged the global markets division with the corporate and investment bank, reversing the decision from 2015 to split the businesses. In the 2017 overhaul, the bank named former finance chief Marcus Schenck to help oversee the new unit, while Cryan himself assumed oversight for the lender's U.S. operations. The bank recently hired a former Goldman Sachs executive, Peter Selman, in a bid to revive the equities business.
"I am focused on growing revenue and prudently managing expenses to improve profitability," Selman said in an interview earlier this year. Along with hiring graduates, Selman said he will invest in Deutsche Bank's technology to build a "best-in-class electronic platform" over the long term. The bank already has good products for derivatives clients, he said.
Chief Financial Officer James von Moltke said at a conference in London last week that any cuts to the investment bank would probably be gradual.
"We will take actions to prune the business this year," Von Moltke also said at the conference. Radical cuts are "not something we think is advisable and the right thing either for the franchise or for shareholders," he said.