Duncan Mavin is a former Bloomberg Gadfly columnist.

If admitting you have a problem is the first step to fixing it, then Deutsche Bank chief John Cryan is making strides.

Dismal Deutsche
The shares have lagged peers over the past year
Source: Bloomberg data

The bank's new co-CEO said employee morale and motivation are taking a hit from falling revenue, rising costs, weaker capital buffers, shrinking market share in some key areas and a slumping share price.

"We expect some people to give up the fight," he added on a conference call with analysts on Thursday.

That's a problem because the next part of his turnaround won't be so straightforward.

Shifting the bank away from riskier, capital intensive debt-trading businesses toward more stable sources of revenue and steadier profits is fairly simple to articulate. But it won't be so easy to execute -- especially against the backdrop of agitated financial markets and low economic growth.

A full-year loss of 6.8 billion euros ($7.4 billion) was pre-announced a week ago. On Thursday, the bank added some important detail.

Investment banking revenue fell sharply in the final quarter across the board: debt sales and trading revenue declined 16 percent from the year earlier period and equity sales and trading dwindled 28 percent. Revenue from advising on deals fell 43 percent.

Torrid Quarter
Revenue from sales and trading as well as advisory declined in the fourth quarter
Source: company filings

The decline, partly a result of the market turmoil flowing from China, was significantly worse than what U.S. competitors have already announced. Citigroup analysts note that equities revenues at Deutsche Bank's U.S. peers were broadly flat compared with a year earlier, for instance.

And Deutsche Bank management said the bank has lost market share in some areas, including advising on mergers and acquisitions.

Costs are also a concern -- "our most critical challenge in 2016 and beyond," Cryan said. Litigation costs should decline in 2016, but a further 1 billion euros of restructuring and severance costs this year will also be a drag. The silver lining is that 2016 is "peak restructuring year," to use the bank's own terminology.

That means shareholders will have to wait for the impact of this overhaul to kick in. The bank says its cost base won't shrink this year. Cost increases related to fixed salaries and software upgrades will be significant. The bank also expects loan losses will pick up.

Last week's pre-announcement forewarned about the lender's deteriorating capital position. In the event, Deutsche Bank's common equity Tier 1 ratio fell to 11.1 percent at the end of December from 11.5 percent the previous quarter. On Thursday, Cryan said that will weaken further by end of March before strengthening later in the year.  The bank says it has no plans to raise fresh capital, although management knows the balance sheet is weaker than its peers and there is not much buffer for further deterioration. Offloading Postbank will bolster the balance sheet, although selling the German retail unit in the current volatile markets won't be easy. 

Cryan was hired with a reputation as a turnaround executive. Unpicking and repairing the bank is a process that can be demotivating, he said Thursday. He might be the best person for the job. But that doesn't mean the process will be fun -- for Cryan, the bank or its investors. No wonder he said he wished people would think he had a talent for running a bank and not just cleaning it up.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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