Deutsche Bank ‘Beyond Repair’ as Trading Drops, Autonomous Says

  • German firm’s technology a ‘clear laggard’ versus JPMorgan
  • Investors are ‘inevitably’ questioning bank’s leadership

The twin tower skyscraper headquarter offices of Deutsche Bank AG stand in Frankfurt.

Photographer: Krisztian Bocsi/Bloomberg

Deutsche Bank AG may be “beyond repair” unless there’s a “miracle” boom at its once-mighty bond-trading business, according to Autonomous Research LLP.

The firm’s “faltering” fixed-income and currency markets franchise, which generates about a quarter of profits, can no longer be counted on to drive earnings, Autonomous co-founder Stuart Graham said in a Sept. 18 note. Adding to the German lender’s problems, more than a decade of underinvestment in technology has left it a “clear laggard” to rivals like JPMorgan Chase & Co., while misconduct scandals have tarnished its reputation with clients.

“When we consider the basics of what makes a bank a winner -- trust (or brand), balance-sheet muscle, technology and its people -- Deutsche looks to be in very bad shape,” Graham said. “In such situations it is inevitable that some investors start to question whether the bank has the right leadership.”

Germany’s Handelsblatt cited an unnamed investor this month as saying he believed that Chief Executive Officer John Cryan wasn’t the right person for the job.

Deutsche Bank’s share price has declined 45.5 percent since Cryan took over as CEO in July 2015 as two straight annual losses of a combined 8.2 billion euros ($9.8 billion) eroded capital and undermined morale at the bank. However, a large chunk of the losses resulted from provisions for legal cases originating long before Cryan’s tenure.

Tech Laggards

Since the turn of the century Deutsche Bank has failed to keep pace with IT spending at JPMorgan. Deutsche Bank’s annual investment was roughly the same amount as the U.S. firm in 2000. This year it has slated to spend $4.1 billion, compared with the $7.4 billion JPMorgan is forecast to spend, Autonomous estimates.

“This falling behind on technology matters a great deal, in our view, since 65 percent of Deutsche Bank’s total group revenues come from businesses which compete head-on with JPMorgan,” Graham said.

Autonomous also highlighted the bank has struggled to retain senior staff after axing bonuses and turnover of its best revenue producers is higher than at peers such as Barclays Plc.

“Given all of these problems, we simply do not think Deutsche is cheap enough,” even after the “share price has performed horribly year to date,” Graham said. With better returns on offer at other banks, “why bother owning Deutsche?”

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