Deutsche Bank’s Cryan Signals Cuts to Jain’s Trading Empire

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Deutsche Bank AG’s new co-Chief Executive Officer John Cryan
Deutsche Bank AG’s new co-Chief Executive Officer John Cryan. Photographer: Gianluca Colla/Bloomberg

John Cryan, on his first day as Deutsche Bank AG’s co-chief executive officer, pledged to tackle costs and cut back the trading operation built up by his predecessor Anshu Jain.

The investment bank’s securities and derivatives trading businesses can’t continue to soak up capital, Cryan said in a letter to employees on Wednesday, his first day on the job.

“We cannot afford that luxury,” Cryan said. “Reducing this reliance should not place us at a competitive disadvantage as the market has anyway already moved in that direction.”

Cryan, 54, replaces co-CEO Jain, who pursued an aggressive expansion into fixed income and trading activities and created Europe’s largest investment bank. Cryan will take over as sole CEO when his counterpart, Juergen Fitschen, steps down in May next year. Deutsche Bank is seeking to restore profitability by cutting costs and exiting businesses, objectives laid out by Jain and Fitschen earlier this year, which Cryan said he will continue to pursue.

The bank pledged in April to cut costs by an additional 3.5 billion euros ($3.9 billion), reducing leverage at its investment bank by about 150 billion euros and selling a majority stake in its Postbank consumer unit.

Delayed Update

Cryan said he will delay presenting an update on the plan by taking until the end of October to review the decisions. The bank previously said it would provide further details on which businesses and countries it plans to exit and an execution timeline by the end of July.

“I see it as highly likely that we will be seeing balance-sheet reduction in the fixed income, currencies and commodities business,” said Stefan Bongardt, an analyst at Independent Research GmbH in Frankfurt. The “delay of strategy is not a surprise.”

Sales and trading, which includes earnings from dealing debt and currencies, accounted for 3.65 billion euros of the investment bank’s 4.65 billion euros of revenue in the first quarter. Total revenue at the bank was 10.38 billion euros in the period.

Cryan told staff the bank’s costs have swelled as technology has remained “inadequate,” with too many tasks carried out manually instead of automated.

‘Poor Prospects’

“Businesses with poor prospects or business lines that are not controlled to the standards we demand, we will exit them,” he said.

The bank will seek to deconsolidate the Postbank consumer banking unit, as outlined in April, and “execute it as expeditiously and effectively as possible,” he said.

Deutsche Bank shares rose 3.3 percent to 27.84 euros at 12:20 p.m. in Frankfurt after declining the previous two days. They are up 11 percent this year after slumping 24 percent in

2014.

Cryan, a supervisory board member since 2013 who hasn’t run any of the firm’s operations, was named the next leader of Germany’s largest bank in a surprise announcement in June.

He 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 of the Swiss bank in September 2008, when losses and writedowns at the Zurich-based bank snowballed past $48 billion, more than any other European lender, prompting a government bailout.

‘Serious Misconduct’

“His lineage as a Warburg mergers and acquisitions banker naturally means he will be cautious and think things through before he makes a decision,” said Christopher Wheeler, an analyst at Atlantic Equities in London. “This will also distance himself from the April announcement, which may allow him to make changes.”

Jain and Fitschen battled to adapt to new rules that made some activities less profitable, while dealing with a string 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 bank has also come under fire from the German financial regulator, Bafin, which has completed its review of Libor rigging and also found Deutsche Bank’s senior managers acted “negligently,” the Financial Times reported in June.

“Our reputation has been damaged by instances of serious misconduct,” Cryan said in the letter. “Consequent heavy fines have strained our capital resources and will likely continue to do so for some time to come.”

The Libor fine was the biggest yet that Deutsche Bank had to pay for misconduct and comes on top of 7.1 billion euros the lender spent on litigation in the previous three years. 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 in June.

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