Deutsche Bank reunites trading and banking units in latest overhaul
ONE YEAR after he split Deutsche Bank’s investment banking and trading units, John Cryan has put them back together with a familiar mandate: Fewer clients and lower costs.
Cryan, chief executive officer since 2015, said last Sunday that the business will focus more on corporate clients and will pare the list of fund managers and other institutions it serves. The division will be led by Marcus Schenck, the lender’s current chief financial officer and a former Goldman Sachs Group Inc. banker, and Garth Ritchie, a trading executive who came up through the equities business.
Schenck and Ritchie are tasked with striking a balance between stemming a loss of market share that accelerated last year and cutting 700 million euros ( RM3.3 billion) of costs by 2018.
That comes as the firm pivots away from hedge funds and other financial firms, pledging almost two-thirds of the unit’s balance sheet for corporations.
In 2011, institutional clients accounted for about twice as much revenue as corporate customers.
“What John is saying is rather than be a bank who runs around after other banks and financial institutions, we’re in the biggest corporate market in Europe and we want to be a part of that,” said Christopher Wheeler, an analyst in London with Atlantic Equities. “That does lead to steadier business.”
Cryan said the bank will invest in client-facing jobs, while eliminating back- office positions in the division. Investors and analysts raised concerns last month that efforts to cut costs and boost capital was undermining the trading unit. Revenue missed analysts’ estimates in the fourth quarter and the bank’s market share among its biggest rivals in both debt and equity trading dropped to the lowest since the financial crisis.
How to boost profitability at the markets business has proved a quandary for Cryan since he took the top job. Separating the business from the advisory and underwriting units and shrinking it was part of his initial overhaul announced in October 2015, titled Strategy 2020. It went into effect in the first quarter of last year.
A number of his predecessor Anshu Jain’s top deputies – including Colin Fan and Michele Faissola – departed as part of the shakeup.
The latest move is aimed at getting more companies to be clients of all three of the investment banking, trading and transaction banking units. The firm said it would allocate 65 per cent of the division’s riskweighted assets to corporate clients, up from the current 55 per cent.
The move marks a reversal from Deutsche Bank’s efforts to cater to hedge funds by growing its prime-brokerage unit. Cryan’s goal to group together customers is also a departure from his earlier strategy when he split the division “along client lines,” according to an October 2015 presentation.
Keeping the two units together was “probably the right answer in the first place,” Cryan said Sunday on a conference call with journalists. “We just didn’t know it at the time.”
More important than the structure of the unit is how Cryan intends to keep up with rivals in trading and investment banking, said David Hendler, an analyst with Viola Risk Advisors.
What John is saying is rather than be a bank who runs around after other banks and financial institutions, we’re in the biggest corporate market in Europe and we want to be a part of that. That does lead to steadier business. Christopher Wheeler, an analyst in London with Atlantic Equities
Deutsche Bank’s share of the bond-trading market fell to about 12 per cent last year, the lowest since 2009, according to data from Bloomberg Intelligence. The lender was the ninth-ranked adviser on announced mergers and acquisitions in 2016, according to data compiled by Bloomberg.
“They’re trying to paint a picture of progress, but it doesn’t mean anything,” said Hendler, who recommends investors sell Deutsche Bank bonds. “What’s their future? It still looks bleak.”
The bank said there have been positive signs from its trading business so far in 2017.
Debt trading revenue was up more than 30 per cent from a year earlier in the first two months of the year, while equities revenue was flat.
Schenck also was named one of two deputy CEOs for the firm Sunday, and will take on his investment bank role later this year as the board searches for his replacement as CFO. The 51year- old joined Deutsche Bank two years ago from Goldman Sachs, where he was head of investment banking services for Europe, the Middle East and Africa. Schenck was previously CFO at the German utility E.ON from 2006 to 2013.
“Schenck is a man of discipline, which is what the investment bank needs,” said Davide Serra, CEO of Algebris Investments, which owns more than 150 million euros of Deutsche Bank’s debt.
Ritchie, 48, joined Deutsche Bank in 1996, just as the lender was beginning to morph into an global investment banking behemoth. He was head of equities until taking over the trading division as part of Cryan’s first strategy overhaul.
Officials from the markets business make up the majority of the executive committee that will run the combined unit, according to an internal memo obtained by Bloomberg. — WPBloomberg