- German lender says project will divert resources from strategy
- Chief Executive Cryan makes comments in staff letter Monday
Deutsche Bank AG Chief Executive Officer John Cryan said Germany’s largest lender is abandoning plans for a new digital bank in the U.S., led by Henry Ritchotte, just months after it was announced.
While the team under Ritchotte developed an “excellent blueprint” for the service in the U.S., Deutsche Bank decided that the project would “divert resources from our core strategy of further focusing and innovating the bank’s offerings to clients and re-building its infrastructure,” Cryan said in a letter to staff on Monday. The lender will discuss plans to redeploy Ritchotte and his team into the existing business, he said.
Cryan’s efforts to cut costs and shore up profitability have been hampered by a slump in trading revenue. The u-turn on the digital bank, announced in October, comes after the CEO was forced to postpone a planned initial public offering of the Postbank retail unit, while a sale of Deutsche Bank’s Abbey Life unit is complicated by an inquiry by the U.K.’s Financial Conduct Authority, according to a person familiar with the discussions.
“Expansion obviously requires investments potentially adding to the balance sheet,” said Neil Smith, an analyst at Bankhaus Lampe. “For all banks the economic environment turned out worse than expected -- at this time you want to focus on the top agenda items and for Deutsche they are certainly all concerned about leverage."
While Cryan has said the bank has enough capital to repay all of its debt four-times over, Moody’s Investors Service cut the company’s senior unsecured debt metric and analysts have questioned its capital position.
Ritchotte stepped down from the bank’s management board at the end of the year, taking on the task of setting up the digital bank. Deutsche Bank is “determined to implement several ideas generated” by his team in the lender’s business divisions, Cryan said without elaborating.
“It’s probably difficult to manage various projects at once and better to focus on core issues,” said Andreas Plaesier, an analyst at Warburg Research GmbH, with a hold rating on the stock.
Deutsche Bank shares have dropped about 33 percent this year after losing 10 percent of their value in 2015, when Cryan took over as co-CEO with Juergen Fitschen.