Reporters across the globe toiled away over the weekend covering the resignation of Deutsche Bank’s co-CEO’s Anshu Jain and Jurgen Fitschen. Jain will leave almost immediately with Fitschen staying for the next year.
The Wall Street Journal story by Eyk Henning, David Enrich and Jenny Strasburg started off detailing the thinking of co-CEO Anshu Jain:
The embattled co-chief executives of Deutsche Bank AG announced their resignations on Sunday, an abrupt move that throws into question the future direction of one of the world’s largest banks.
Anshu Jain, a longtime investment-banking executive, plans to step down at the end of June. The other co-CEO, Jürgen Fitschen, plans to leave after Deutsche Bank’s annual shareholder meeting next May. They will be replaced by John Cryan, a former UBS AG finance chief.
The joint resignations follow a series of financial missteps and regulatory penalties at the giant Frankfurt-headquartered bank. In recent weeks, the pressure has intensified, with an increasing number of shareholders and employees losing confidence in the bank’s performance and the management team’s turnaround plans.
People familiar with Mr. Jain’s thinking said the decision to resign came together over the past few weeks. As Deutsche Bank reviewed its strategic and financial goals for the next five years, Mr. Jain concluded this was the right time to exit.
Jack Ewing wrote for The New York Times that the bank is struggling to remain relevant in the new global banking environment:
While Deutsche Bank, Germany’s largest bank, has the biggest investment bank not based in the United States, some analysts say it can no longer compete at the same level in an age when regulators are cracking down on banks’ use of borrowed money to do business. The world’s five largest investment banks by revenue are based in the United States; Deutsche Bank is No. 6.
“Simply put, Deutsche is not the Goldman Sachs of Europe,” Huw van Steenis, head of European banks equity research at Morgan Stanley, said in an email on Sunday. Mr. van Steenis estimated that Deutsche Bank needed to take on twice as much leverage, or borrowed money, as Goldman to earn the same profit.
Deutsche Bank has already announced a reorganization plan intended to simplify the bank and annually save 3.5 billion euros, or about $3.9 billion. Its goal is to produce a profit equal to at least 10 percent of the capital invested.
As part of the plan, Deutsche Bank will spin off Postbank, a branch network in Germany. The bank also plans to reduce leverage, but Mr. Jain had been adamant that Deutsche Bank would remain a force in investment banking.
A decision by Mr. Cryan to cut the size of the investment bank could please regulators who have been critical of Deutsche Bank’s heavy dependence on borrowed money. But that move would also raise concerns in the rest of the world that with no serious rivals outside the United States, American investment banks would become even more dominant.
Bloomberg’s Shane Strowmatt and Ambereen Choudhury had this background about the new CEO John Cryan, who joins from UBS:
“With John Cryan as CEO, we think that Deutsche is transitioning from one of the least credible management teams in investors’ minds to one of the most highly regarded,” Omar Fall, an analyst at Jefferies LLC in London, wrote in a note to clients. “We do not foresee a dramatic change in strategy or capital raising, but market confidence on delivery should clearly increase.”
Deutsche Bank’s stock has posted the worst performance among global peers during the co-CEOs’ tenure. The company is valued at about 38.1 billion euros, or 0.61 times its tangible book, indicating it’s worth less than investors should expect to receive if the company liquidated its assets.
Cryan won investors’ respect by helping lead UBS Group AG back from the brink of collapse as chief financial officer during the credit crisis of the last decade. He became CFO in 2008, when the largest Swiss bank was reeling from record losses tied to the U.S. housing market.
“UBS was in a big crisis and Cryan managed it well,” said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux. “His communication was also very good,” winning points with investors, he said.
Cryan left UBS in 2011 and joined Temasek Holdings Pte, the Singapore state-owned investment company, as president for Europe, where he worked for two years. He joined Deutsche Bank’s supervisory board in 2013 and has served on the audit and risk committees.
John Bacon and Mike Snider wrote for USA Today that the decision comes after several high-profile regulatory settlements:
Two weeks ago, Deutsche Bank agreed to a $55 million settlement with the U.S. Securities and Exchange Commission over misstated paper losses of at least $1.5 billion during the global financial crisis.
That agreement came after the settlement charges in April, which included payments of $600 million to the New York State Department of Financial Services, $800 million to the Commodities Futures Trading Commission, $775 million to the U.S. Department of Justice, and $340 million to the United Kingdom’s Financial Conduct Authority.
Also in April, Deutsche Bank announced a reorganization that involved spinning off its Postbank branches in Germany, closing offices in some countries and eliminating less profitable business at its investment banking division.
The bank’s leadership drew shareholder anger at its annual meeting last month amid concerns over disappointing profit growth, the fines and the restructuring plans. Hermes Equity Ownership Services, a major stakeholder, had called for management changes.
Deutsche Bank is clearly struggling and this move should be a signal to investors that the firm is trying to work through it’s issues. But it could also show that there’s more to come. By hiring a crisis manager and one who has navigated issues at UBS, the bank could have more problems to solve.
