Trading Drought at Deutsche Bank, Barclays Adds Pressure on CEOs

  • Revenue from trading falls twice as much as at U.S. peers
  • ‘Ask yourself how long you’re willing to sit by and watch’

Barclays Trading Revenue Plunges

John Cryan’s Deutsche Bank AG and Jes Staley’s Barclays Plc cemented their status as 

John Cryan

Photographer: Jason Alden/Bloomberg

Europe’s investment-bank laggards in the third quarter, heaping pressure on the leaders who were brought in two years ago to turn things around.

Revenue from trading bonds and stocks plunged 30 percent at Deutsche Bank and 31 percent at Barclays, the lenders reported Thursday. That’s twice the 15 percent average decline of their largest U.S. peers. For Barclays, its the worst performance since Staley took charge.

The CEOs are fending off challenges on various fronts as they try to bolster returns at two of Europe’s biggest investment banks after years of underperformance and legal debacles. Staley has struggled to win over some investors skeptical of his push to build up the securities unit, while cost cutting and a strategy flip-flop at Deutsche Bank left Cryan unable to win back more clients. Shrinking revenue may make it harder for both to maintain the support of investors.

“As an investor, you have to ask yourself how long you’re willing to sit by and watch this,” said Daniel Regli, an analyst at Mainfirst in Zurich who has a neutral recommendation on Deutsche Bank shares. “The pressure on management teams is definitely rising.”

Promises by the chief executive officer to improve trading revenue failed to sway investors. Deutsche Bank slid 1.8 percent at 3:14 p.m. in Frankfurt trading, while the U.K. bank fell 5.7 percent in London, on track for the biggest drop in more than a year.

“Staley is under fire for being too growth focused while Cryan is taking flak for being too focused on cost cutting,” said Piers Brown, an analyst in London with Macquarie Ltd. who recommends investors sell shares in both banks. "What unites the CEOs is the horrendous share price performance of both banks.”

‘Poor’ Quality

While analysts had expected a decline in trading revenue across the industry amid low volatility, it was worse than feared at Deutsche Bank and Barclays. The European banks laid the blame in different places beyond the expected lack of client interest. Staley cited the “integration” of unwanted assets into Barclays’ macro-trading business from its so-called non-core unit. Deutsche Bank said the decline arose in part because executives had moved some businesses out of the fixed-income division, reducing revenue.

Analysts weren’t impressed. The “quality of results” at Deutsche Bank was “poor,” wrote Kian Abouhossein at JPMorgan. Barclays’ revenue performance was “disappointing,” according to Credit Suisse Group AG’s Claire Kane.

Barclays is the worst performer in the 44-member Bloomberg Europe 500 Banks and Financial Service Index; Deutsche Bank is third from bottom.

The results added to the challenges faced by Staley, a former top JPMorgan Chase & Co. executive who took over in late 2015. The CEO is facing a U.K. regulatory probe for attempting to ferret out the identity of a whistleblower who alleged wrongdoing at Barclays. Shares in the lender had already fallen 12 percent this year before Thursday.

‘No Relief’

“Barclays investors have already endured a torrid time in 2017 and today’s” results offer “no relief at all,” Ian Gordon, an analyst with Investec Plc in London, wrote in a note titled “That don’t impress me much.”

Jes Staley

Photographer: Simon Dawson/Bloomberg

Gordon, who has recommended buying Barclays since February, placed his rating under review, the note shows. He advised investors to pick up the stock just Wednesday because it was “a little too cheap,” a previous note shows.

Others questioned Staley’s strategy of bulking up Barclays’ investment bank and taking more risks at the division. Tim Throsby, who runs the division, last month outlined plans to restore its “commercial zeal” and to “redeploy” about 23 billion pounds ($30 billion) of risk-weighted assets into more lucrative businesses.

“We’re not going to change our strategy,” Staley said. “You cannot cut yourself to glory and those that have tried to do that will ultimately fail.”

Trading Drought

The trading drought also threatens the plans of Cryan, in charge since mid-2015, who outlined the bank’s third turnaround plan in as many years in March. He has reduced risk in the investment bank, settled billion-dollar misconduct cases and raised fresh capital to win back clients who stopped doing business with the bank last year when speculation about its financial strength peaked.

But a pledge to restore “controlled” growth at the lender has so far proven empty. Since he took over, revenue at the bank has declined in all but two quarters. Three of the 10 largest stakeholders in Deutsche Bank, speaking earlier this month on condition of anonymity, said they want to see a turnaround in the next few quarters, particularly in the trading business, to continue to back the CEO.

“If you put them side by side with the American banks, they just don’t have the capital headroom to put more money to work,” said Macquarie’s Brown.

— With assistance by Nicholas Comfort

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