Thursday 29 September 2016

Deutsche Bank CEO to shy away from 'big bang' reform at board summit

Thomas Atkins

Published 10/09/2015 | 19:30

Deutsche Bank HQ, in Frankfurt
Deutsche Bank HQ, in Frankfurt

John Cryan, Deutsche Bank's new chief executive, will not present "big bang" reforms when the supervisory board gathers Thursday evening, rather an acceleration of existing plans to shed assets and exit countries.

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The group's 19-member supervisory board convened for a three-day retreat planned for the luxury Alpine resort near the Tegernsee lake south of Munich, a favourite location for Germany's corporate executives.

Cryan's ability to launch major reforms is limited by numerous factors, including the costly overhang of outstanding litigation, discussions held by Reuters with several people involved in the weekend retreat revealed.

He will continue the bank's "salami slicing" tactic of making incremental changes and cuts to its balance sheet to avoid hefty one-off charges.

A big annual loss could result if the bank attempted, for example, to sell many of the long-dated derivative positions that use up a lot of the regulatory capital at its investment bank.

It could also alienate the very executives Cryan needs most to execute the new plan, because their bonus payments could be clawed back due to the loss.

But Cryan is keen to keep up the momentum for reform after a series of leaks hampered efforts led by his predecessor Anshu Jain and outgoing co-CEO Juergen Fitschen.

Deutsche, hit by a string of scandals and fines, is currently the lowest-ranking global investment bank when measured by its price to book ratio of around 0.5.

Cryan is expected to shy away from major reforms and opt instead to speed sales of unwanted assets warehoused in Deutsche's so-called bad bank. This is because Deutsche still has to resolve ongoing litigation and investigations and faces 3 billion euros ($3.4 billion) in outstanding fines and settlements, according to analysts' estimates.

Deutsche ability to lighten its balance sheet through a sale of its 20 percent stake in Chinese brokerage Hua Xia is likely to have been hampered by extreme volatility in Asian markets.

While sweeping change may be out of reach, Cryan will be able to shrink the bank from a global business to a regional one focusing on Europe, the United States and Asia.

That means Deutsche would be likely to keep its retail operations in Italy and Spain but sell operations in South America and Africa, certain operations in Asia, and others such as Russia.

The supervisory board is impatient for change. "I expect straight talk," one member of the board told Reuters ahead of the meeting. Cryan was a member of the supervisory board before his appointment as CEO in July.

While the supervisory board ultimately holds a veto over the bank's strategy, the management board is charged with formulating it.

A spokesman for Deutsche Bank declined to comment on the meeting but said that details of the strategic plan were to be expected by the end of October

Reuters

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