CHIEF EXECUTIVE Officer John Cryan is losing the support of some investors just seven months into Deutsche Bank AG’s latest turnaround plan.
Three of the 10 largest stakeholders in the bank, speaking on condition of anonymity, said they want to see a turnaround in the next few quarters, particularly in the trading business, to continue to back the 56-year-old Briton. Two said that, should Cryan not be able to deliver by the annual shareholder meeting in May, an external candidate may be the best option to replace him.
Cryan hasn’t delivered on his March pledge to resurrect growth at Europe’s largest investment bank as soon as this year — revenue declined in all but two quarters since he took over in 2015 and has been falling in recent months. Still, he’s pleased some investors by settling legacy misconduct cases, reducing risk in the securities unit and raising fresh capital.
“Pressure will mount on the management board if we don’t see improvement in the next two quarters,” said Ingo Speich, a fund manager with Union Investment, which owns about 0.15% in Deutsche Bank and is not a top-10 holder, according to data compiled by Bloomberg.
A spokeswoman for Deutsche Bank declined to comment.
Deutsche Bank’s shares have lost more than 7% since Cryan raised €8 billion ($9.4 billion) from investors in April, in a capital increase underwritten at €11.65 a share. That’s the third-worst performance in the 44 member Bloomberg Europe 500 Banks and Financial Services Index. The stock fell 2.1% Monday to close at €14.35.
The shareholders in private expressed dissatisfaction with that performance. One contrasted it with UniCredit SpA, the Italian lender that surged 79% since it appointed Jean Pierre Mustier in June of last year to overhaul the lender.
Cryan has been doing a good job cleaning up the bank, said one of the investors, citing the legal settlements over the past twelve months as one example. But, this investor said, it’s not clear he’s the right person to lead the bank back to growth.
For now, “Cryan is still the right man to clean up the bank and cut costs,” said Speich at Union Investment.
Adding pressure on Cryan is tension with Chairman Paul Achleitner over the executive’s relations with one key investor, according to the Wall Street Journal. Cryan has avoided meeting Chinese conglomerate HNA Group Co., the newspaper reported over the weekend, irking Achleitner, who helped woo HNA. The company has come under scrutiny at home, where authorities clamp down on foreign acquisitions by Chinese investors, and abroad, where little is known about its ownership.
Two meetings between Cryan and HNA CEO Adam Tan had been scheduled but ultimately fell through because of scheduling conflicts, not because Cryan refused to see the HNA representative, according to a person briefed on the matter. A spokeswoman for Deutsche Bank confirmed that Cryan hasn’t yet met HNA but that he plans to do so.
“It’s a wrong signal not to talk with investors,” said Michael Huenseler, a fund manager at Assenagon Asset Manager, which owns Deutsche Bank shares. “It’s something we expect Cryan to do.”
Huenseler said he expects that Cryan’s contract won’t be renewed when it expires in 2020 but “it wouldn’t be good to let him go prematurely.” Germany’s Handelsblatt cited an unnamed investor last month as saying they increasingly believed that Cryan wasn’t the right person for the job.
When Cryan unveiled his latest turnaround plan in March, a strategy focused on cutting costs and integrating its Postbank consumer banking unit, he said he wanted to return the bank to a path of “modest growth.” After reducing risk in the investment bank, he had planned to regain market share in the parts of fixed-income trading he is holding on to.
But a challenging market and low morale following deep bonus cuts and two years of tumult at the bank have put that goal out of reach for now. Second-quarter revenue from fixed-income trading dropped 12% year-on-year. Equity trading decreased even more, slumping 28%, as the lender lost market share. The CEO has guided that the next set of results, due on Oct. 26, won’t see a huge improvement.
Fitch Ratings last month cut the bank’s long-term credit grade one level, saying it will take longer to revive growth. That came a week after Autonomous Research LLP said Deutsche Bank may be “beyond repair” unless there’s a “miracle” boom at its once-mighty bond-trading business.
Restructuring the bank’s retail business is another focus as Cryan seeks to merge Postbank, a retail subsidiary he previously sought to sell, with Deutsche Bank’s other retail operations in Germany.
But he has said that the project will take up to five years to implement, meaning restructuring costs will likely weigh on profitability for some time before the expected benefits start trickling through.
A plan to seek regulatory approval to use Postbank’s retail deposits in other parts of the bank, meanwhile, has been delayed. To reassure the European Central Bank and Germany’s Bafin, Deutsche Bank has pledged to cap the amount of retail deposits it will use to support US activities, people familiar with the matter said last month. — Bloomberg