In ten days’ time, Deutsche Bank will clarify exactly what’s going on in a strategy presentation. In theory, this will be the strategy to end all strategies. John Cryan is, after all, a doer, whereas Anshu Jain is being retrospectively portrayed as a pontificator whose strategy was simply to have no strategy.
This isn’t entirely true. If you want to understand where Deutsche’s investment bank is today, this is what you need to know about what it did over the past five years to arrive in this situation.
In 2010, Deutsche Bank went on a hiring spree to boost its equities and commodities businesses
With the promotion of global head of equities Garth Ritchie as head of the entire trading division, it looks like Strategy 2020 will favour Deutsche’s equities business. This won’t be the first time. In 2010, Anshu Jain announced that the bank was investing $2bn on hiring and technology for the global markets business in an effort to become a top five player in global commodities and global equities.
In June 2011, Anshu Jain confirmed his intention of continuing to invest in equities, commodities and corporate finance whilst rationalizing ‘risk management and support activities’
2011 was the occasion of Deutsche’s last seminal strategy presentation. You can still see it here. In it, Jain spoke of, ‘strategic investments across corporate finance, commodities and equities and related infrastructure spend,’ and of, ‘rationalisation of corporate coverage, risk management and support activities.’
The crucial chart from this presentation was the one below. Fixed income businesses were to be ‘optimized’ (read trimmed) or ‘maintained’, equities and commodities businesses were to be invested in (read grown) or ‘maintained’. and corporate finance businesses were to be kept as they were.
Source: Deutsche Bank
In June 2012, Deutsche said it was cutting 900 people from its equities and corporate finance businesses in Asia and the EU and 600 people from its infrastructure team
The chart below comes from Anshu Jain’s June 2012 strategy presentation. During this presentation, Jain also declared his intention of hiring for the US corporate finance and equities businesses, for flow sales and trading in India, China, Korea and the ASEAN (Indonesia, Malaysia, Philippines, Singapore and Thailand) and for risk. This was after rationalizing risk management activities one year earlier.
Source: Deutsche Bank
In September 2012, Deutsche announced a program of ‘operational excellence’
Along with its third quarter results. Deutsche announced ‘Strategy 2015+’. This required the bank to achieve €4.5bn of savings a year by 2015, along with a return on equity of 12%. Costs were to be cut by: reducing compensation, cutting staff and engaging in ‘front to back process optimization’.
In their presentation accompanying the results, Colin Fan and Robert Rankin – then heads of Deutsche’s corporate and investment bank, said they’d be investing in FX, emerging markets and electronic trading platforms, turning around European and Asian equities and getting rid of unprofitable clients.
Source: Deutsche Bank
In October 2012, Stefan Krause – Deutsche’s then CFO, said the bank had no intention whatsoever of pulling back from fixed income sales and trading
As fixed income revenues were squeezed. Deutsche faced questions as to why it wasn’t cutting costs in the division. Krause explained: “We are a market leader. We have scale and we believe we can make money in this. The investments in our platform to achieve target returns under Basel III are substantial, but if a competitor doesn’t start from the same platform it will be harder for them to make a decent return.”
In January 2013, Deutsche said that it had made 1,400 people redundant from the corporate and investment bank and was planning to shift 8,000 jobs overseas to low cost locations
When Deutsche announced its fourth quarter results for 2012 in January 2014, the emphasis was all on cutting infrastructure costs. Yes, the bank said it had cut 1,400 people from the CIB, but this was nothing compared to the 8,000 jobs it planned to shift from London, Hong Kong and Singapore to more ‘cost effective’ locations.
In September 2013, Anshu Jain said he was ‘gratified’ by Deutsche’s new efficiency
By September, Anshu Jain suggested things were all going well: the investment bank was doing more with less and he was “gratified” by its new efficiency. Unfortunately, however, Deutsche’s fixed income sales and trading revenues were falling.
As the year went on, Deutsche continued to cut back office staff in large numbers (1,895 back office staff went in 2013, versus just 562 front office staff) and decided to pull out of commodities trading. By January 2014, it was clear that Deutsche’s fixed income market share was in decline.
In May 2014, Deutsche unexpectedly raised more capital – a move that was supposed to put its fixed income business on a firm footing
Deutsche raised €3bn of capital in 2013 and said that was the end of the matter. It came as a surprise, therefore, when Anshu Jain went back to the market for a further €8bn in June 2014. This move, which seriously undermined Jain’s credibility with investors, was seen as an attempt to provide the bank with the capital needed to maintain its market share in fixed income sales and trading and to allow it to grow its market share in US fixed income trading, where Deutsche had just made seven senior trader hires.
In July 2014, Deutsche’s fixed income strategy was put at risk by US reporting failures. The bank said it would hire 500 new compliance staff and committed to additional cost cuts
Just as Deutsche’s new US fixed income traders got to grips with their new jobs, the German bank’s US aspirations were thrown into question by the revelation that reporting errors in the US unit could force it to raise yet more capital. Deutsche was compelled to commit to hiring 500 new compliance and control staff as a result. At the same time, the bank said it was upping its cost cutting program from €4.5bn until 2015 to €6-7bn until 2018.
In January 2015, Deutsche revealed that all the compliance hiring was interfering with its cost-cutting program
When Deutsche announced its fourth quarter results for 2014 in January 2015, it became apparent that things weren’t going to plan. Most notably, €1.3bn of cost savings at the bank had been offset by an identical €1.3bn increase in “regulatory-related spend.”
“Our execution and cost reduction programme has not yet delivered the results we were were aiming for,” admitted Anshu Jain.
In April 2015, Anshu Jain made a new ‘Strategy 2020’ presentation declaring his intention of growing in corporate finance, equities, emerging markets debt, and equity derivatives
The most recent big strategy presentation at Deutsche happened in April 2015 and was Anshu Jain’s big Strategy 2020. Current CEO John Cryan, who was then a member of Deutsche’s advisory board, is said to have had a big hand in Jain’s presentation. If you work in Deutsche’s investment bank, it boiled down to the (confusing) chart below. Basically, this suggests you’re fine at Deutsche if you’re in corporate finance or equities – both areas which benefited from Cryan’s reshuffle. Curiously, Jain also declared his intention of expanding Deutsche’s emerging markets debt business, an aspiration which is probably best forgotten after events in China last summer.
Photo credit: Tama Leaver