Deutsche's investment bank is going to be "fun" again. So promised CEO John Cryan in an interview with Bloomberg this morning. Yes, Deutsche Bank embarking on a new round of cost-cutting. Yes, there's another re-organization, but the dark cloud of stale bonuses and job losses that's lingered over Deutsche recently is going to be blown away by a return to growth.
Outsiders might be skeptical, but insiders seem to be slurping up the kool-aid. "The senior people at DB are pulling together," says one fixed income headhunter who works in New York and London."A lot of them have been through this kind of thing before at other banks and they know that things get better." While skepticism isn't unjustified, there are also reasons to feel a twinge of jollity.
Never trust a CEO who says job cuts are over. In February, John Cryan said there would be "no more workforce cuts." Today, he told Bloomberg that there will be new job cuts and that associated numbers will be given in "due course."
The all-new layoffs could be significant. Deutsche wants to cut another €3.1bn from costs. Deutsche's €1.7bn of cost savings in 2016 were accompanied by 1,360 layoffs, so there could be another 2,500 cuts this time around. Expect them soon: Deutsche is booking 70% of its severance and restructuring charges in the next two years.
Deutsche hasn't broken out its new cost program on a divisional basis, but there's reason to think the new cuts won't disrupt the fun in the investment bank. As Dan Davies at Frontline Analysts points out, you can't cut your way to growth in investment banking, and growth is what Cryan wants. He said today that Deutsche wants to regain its lost market share in fixed income sales and trading. It won't do that by cutting into the muscle of salespeople and traders. It will do that by reducing "non-revenue generating front office staff", eliminating infrastructure duplication, and cutting technology spending as per the chart below from today's presentation.
Source: Deutsche Bank
Under its new plan, Deutsche Bank plans to show some love to its investment banking division (IBD). As legacy assets are run-off, the newly combined origination and advisory, transaction banking, and financing divisions, will account for 65% of the risk weighted assets in Deutsche's investment bank in future - up from 55% in the past. Sales and trading will remain at around 35% of the total.
Deutsche also plans to hire. Cryan said today that he'll reinvest in fixed income talent to replace any staff who leave. In the presentation accompanying the new strategy the bank promises to "continue to grow the APAC franchise," especially the advisory and capital markets business, implying Deutsche will hire new bankers and markets professionals in Asia. Deutsche also wants to "deepen" relationships in M&A and ECM (suggesting it might hire some 'rainmakers'), to recapture market share in equities and equity derivatives sales and trading, and to build contacts with the pensions and insurance industry in its rates business. Hiring all round then.
Two weeks ago, Deutsche was said to be making big layoffs in its fixed income business. Now insiders say fewer people are coming out than expected. A trickle of names like Abhiroop Lal, a director in cross asset sales, Paisley Arnold, a director in fixed income sales, and Mariano Naveira, a VP in G10 rates sales, are understood to have left the bank, but the torrent of institutional sales exits hasn't materialized. The bigger cuts are understood to have been put on hold as the fixed income division is off to a strong first quarter.
In future, though, Deutsche will be more interested in corporate than institutional clients. The new strategy will be "corporate-client led," with corporates defined as " corporations, infrastructure firms, private equity partnerships, governments, insurance companies, banks and other Non-Bank Financial Institutions." This sounds good for Deutsche's investment bankers, but the chart below, from today's presentation, suggests the institutionally-focused global markets business may yet get the cold shoulder.
Source: Deutsche Bank
European banks are struggling on Wall Street and Deutsche Bank is no exception. However, the new $8.5bn rights issue should help plug the bank's U.S. capital gap and make it easier to for Deutsche to boost its presence in the Americas. It's a measure of DB's commitment to the U.S. that John Cryan himself will be personally overseeing the bank's U.S. business following the departure of Jeff Urwin.
While Urwin, an ex-J.P. Morgan banker, leaves, Marcus Schenck - an ex-Goldman Sachs banker - is staying and rising to the top. 52 year-old Schenck was formerly partner and head of investment banking services for EMEA at Goldman. He's been Deutsche's CFO since 2015 and is now co-head of the investment bank with Garth Ritchie and co-deputy CEO to John Cryan. If and when Cryan leaves (he says he's going nowhere), Schenck is likely to be his replacement. HSBC bankers can testify to the fun that ensues when an ex-Goldman banker takes the helm.
For all the fun that's coming, it remains that case that Deutsche has changed strategy - again. Not everyone's impressed. "It's a broken bank," says one Deutsche insider. "How can you have three strategy changes in four years?"