Jain Era Ending as Deutsche Bank Appoints Cryan for Top Job

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Who Is New Deutsche Bank CEO John Cryan?

Deutsche Bank AG shares surged the most in more than two years as investors welcomed a management overhaul at Germany’s biggest bank.

John Cryan, a supervisory board member since 2013, was named the next chief executive officer in a surprise announcement Sunday. He’ll replace co-CEO Anshu Jain at the end of the month and become sole CEO when Juergen Fitschen steps down next May.

The shakeup is the latest to sweep aside top management at one of Europe’s largest banks as firms grapple with stricter regulatory scrutiny and higher capital demands. Cryan will inherit a lender plagued by billions of euros in legal costs and questions about its revised strategy. Jain, 52, and Fitschen, 66, missed profit targets and presided over a lagging share performance.

“With John Cryan as CEO, we think that Deutsche is transitioning from one of the least credible management teams in investors’ minds to one of the most highly regarded,” Omar Fall, an analyst at Jefferies LLC in London, wrote in a note to clients. “We do not foresee a dramatic change in strategy or capital raising, but market confidence on delivery should clearly increase.”

The shares jumped as much as 8.2 percent, the biggest intraday advance since April 2013, and traded up 6 percent at 29.27 euros by 11:04 a.m. in Frankfurt.

UBS Experience

Deutsche Bank’s stock had posted the worst performance among global peers during the co-CEOs’ tenure. The company is valued at about 40.3 billion euros ($44.9 billion), or about 65 percent of its tangible book, indicating it’s worth less than investors should expect to receive if the company liquidated its assets.

Cryan won investors’ respect by helping lead UBS Group AG back from the brink of collapse as chief financial officer during the credit crisis of the last decade. He became CFO in 2008, when the largest Swiss bank was reeling from record losses tied to the U.S. housing market.

“UBS was in a big crisis and Cryan managed it well,” said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux. “His communication was also very good,” winning points with investors, he said.

‘Highly Regarded’

Cryan left UBS in 2011 and joined Temasek Holdings Pte, the Singapore state-owned investment company, as president for Europe, where he worked for two years. He joined Deutsche Bank’s supervisory board in 2013 and has served on the audit and risk committees.

Jain and Fitschen faced pressure to persuade investors that a strategic plan announced in April would succeed after Germany’s biggest bank failed to meet previous targets amid mounting legal costs. The top managers received the lowest approval from shareholders in at least a decade at last month’s annual meeting.

“With the previous CEOs having missed targets, investors need to see evidence on cost management,’ JPMorgan Chase & Co. analysts led by Kian Abouhossein wrote in a note to clients on Monday. Cryan ‘‘has a proven track record in turning UBS around as its CFO and is highly regarded by the market,’’ they wrote.

Sudden Turnabout

The turnabout was sudden for Jain, who rose to prominence building Deutsche Bank into Europe’s biggest investment bank and a leader in debt trading. He overcame criticism of his investment-banking pedigree and a lack of fluency in German to join with Fitschen in replacing CEO Josef Ackermann in 2012.

Jain and Fitschen struggled to adapt to new rules that made some activities less profitable, while dealing with a barrage of legal issues.

The bank was fined $2.5 billion in April by regulators in the U.S. and the U.K. for manipulating interest-rate benchmarks. The penalty was the biggest yet that Deutsche Bank had to pay for misconduct and comes on top of 7.1 billion euros ($7.9 billion) the lender spent on litigation in the previous three years.

It still faces potential fines related to foreign exchange, mortgage- and asset-backed securities and precious metals dealings, and is under investigation for alleged U.S. sanctions violations, according to its annual report. Deutsche Bank is also conducting an internal probe into possible money laundering by Russian clients that may involve about $6 billion of transactions over more than four years, people with knowledge of the situation said last week.

‘Badly Broken’

‘‘Deutsche Bank’s model is badly broken,” said Simon Johnson, an economist at the Massachusetts Institute of Technology. “They have too little equity capital, a flawed culture, and an appalling record on risk management.”

At the annual shareholder meeting last month, Jain acknowledged Deutsche Bank failed to keep two key promises: reining in costs and resolving litigation issues.

On Sunday, he emphasized the positive, saying that during the period he and Fitschen ran the bank they boosted capital, cut risk and invested in technology, control and compliance.

“It has been 20 years this month since I came to work at Deutsche Bank and it has been an extraordinary time,” Jain, a native of India, said in the statement.

New Strategy

Over the past month, Jain came to the conclusion that the bank needed a five-year commitment from the CEOs to deliver on the strategic overhaul and consequently decided a change of leadership would be better for the firm, said a person with knowledge of the situation. Fitschen didn’t want to continue leading the firm and agreed to resign with Jain, said the person, who asked not to be identified because the discussions are private.

As part of the new strategy, Deutsche Bank will target a return on tangible equity of 10 percent by 2020 -- less than the 12 percent return on equity it had planned for 2016. In the first quarter, the profitability measure stood at 3.1 percent.

“Their decision to step down early demonstrates impressively their attitude of putting the bank’s interests ahead of their own,” supervisory board Chairman Paul Achleitner said in the statement.

Jain’s departure reflects a wider shift at Europe’s biggest banks away from a reliance on fixed-income trading, which helped fuel profits before the financial crisis and which has come under the heaviest regulation in the ensuing years. CEOs with trading backgrounds at UBS, Barclays Plc and Credit Suisse Group AG have given way to successors with backgrounds in banking or insurance.

Fitschen, who was raised in northern Germany, joined Deutsche Bank in 1987 and is the longest-serving employee on its management board.

The two men won’t get paid for the remainder of their contracts, which were to run until 2017, according to people with knowledge of the matter. Each was awarded 6.66 million euros of compensation for 2014.

“It’s a logical change given the current environment,” said Steve Schwarzman, the co-founder of Blackstone Group LP, in an interview. “It’s difficult for anyone to gain the confidence of investors, regulators and politicians.”

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