Morning Coffee: Inside the explosion at Deutsche Bank. How DJ D-Sol starts his sets
What a weekend at Deutsche Bank. After weeks of rumbling and plotting against CEO John Cryan by chairman Paul Achleitner, the deed has been done. Cryan is out. So too is Marcus Schenck, the ex-Goldman Sachs banker who was co-head of Deutsche's corporate and investment bank. Cryan - whom 69% of 2,500 respondents wanted to stay in our poll - is being replaced by Christian Sewing, a 47 year-old German who joined Deutsche as a teenager and has only ever worked in retail banking, audit and risk.
If you're a trader at Deutsche Bank, particularly in the U.S., it's going to be hard not to feel concerned. With good reason: one of the criticisms leveled at Cryan (aside from this year's 30% drop in the share price) was his failure Deutsche's cost-cutting strategy. Another was his plan to cut costs without an attendant plan for making money. Sewing has already sent a letter to employees proclaiming his intention to, "make and implement tough decisions."
What does this mean for the investment bank? Sewing says he intends to take a close look at the unit, to "change in terms of our earnings, cost and capital structure," to "analyze exactly how we want to position ourselves in the difficult market environment," and to withdraw from areas that are not profitable.
Which areas will these be? The U.S. business looks like a prime candidate: J.P. Morgan analysts issued a note last week saying that the business consumes capital and generates poor returns and that it therefore makes sense to shrink the U.S. corporate clients and equities business. Handelsblatt suggests U.S. municipal bond trading and some Asian trading may also be at risk, although this is unconfirmed by the bank.
Sewing needs to start soon. In today's letter, he says Deutsche's costs must not exceed €23bn ($28bn) for this year. Last year, they were €24.7bn, down from €39bn in 2015. - Cryan has cut costs, apparently just not fast enough.
The man charged with the newly invigorated cost cutting in the corporate and investment bank is Garth Ritchie, whom himself was reportedly contemplating leaving Deutsche only last week. With Schenck leaving instead, Ritchie, a former derivatives trader, is assuming the task alone, but it clearly won't be easy. Even though Cryan spoke about investing in the future of the investment bank in February and putting money into equity derivatives in particular, Schenck is said to have left because he didn't feel the bank was committing enough resources to secure Deutsche's global position.
In the meantime, Cryan's unceremonious exit, engineered by Achleitner, which has reportedly prompted at last one member of the supervisory board to complain, leaves a bitter taste. Cryan had another two years on his contract. Having successfully cut 37% of cuts at Deutsche Bank in two years, he can't be too strenuously accused of failing to cut fast enough. If revenues didn't come through as expected, this must also be blamed upon the destabilizing effect of the DOJ fine in 2016, which meant Deutsche spent all last year trying to regain market share. Nor did it help that Deutsche's investment bank suffered plummeting morale after bonuses were withheld a year ago.
This year, Cryan and Schenck came through and paid generous bonuses to compensate for last year's parsimony, leading to a loss of €767m in the fourth quarter. Today it looks like Cryan in particular lost his job for doing right by employees in the most recent bonus round. 'Setbacks' seen in the fourth quarter are not to be repeated under any circumstances, says Sewing in his letter today. It doesn't augur well for Deutsche's bonuses for 2018.
Separately, Goldman Sachs' succession strategy looks smooth by comparison. David Solomon, the man who will one day replace Lloyd Blankfein as CEO, is still out and about working part time as a DJ until his big day comes. You'll know it's DJ D-Sol on the decks if you see a tall 50-something man dressed all in black and wearing a baseball cap and he starts his set with the Pink Panther theme tune.
It could've been Matt Zames. (Bloomberg)
It would have been impossible to attract an external candidate as a replacement for John Cryan because Deutsche Bank pays so poorly. (Handelsblatt)
Marcus Schenck recently sent a memo congratulating Deutsche Bank's ECM, M&A and leveraged finance businesses for gaining market share in the first quarter. (Handelsblatt)
The dismissal of Mr. Cryan, a former investment banker, and the elevation of Mr. Sewing struck investors and executives at other banks as moving Deutsche Bank closer to a potential merger with another European bank, possibly in Germany. (WSJ)
Barclays is preparing to split its euro rates trading team because of Brexit and plans to move part of the unit that trades eurozone government bonds and interest rate swaps away from its main trading floor in London. Only 10 people will move and the head of the team will remain in London. (Financial Times)
Barclays is about to start looking for a new chairman to replace John MacFarlane (who selected Jes Staley). The result to the FCA investigation in Staley is expected to come in early May and to be no more than a fine. (Sky)
Ex-BofA executive Alex Wilmot-Sitwell and ex-UBS head of corporate finance and advisory Matthew Smith are joining Perella Weinberg. (Financial Times)
There's a Ferrari and there's Fiat. Fiat is like the bulge bracket banks that are active in all business areas and strive for volume. UBS is like Ferrari: we are much smaller and more focused. " (Handelsblatt)
Google employees in the UK earn an average of more than £200k. (The Times)
Goldman lures engineers with fermented green tea. (Bloomberg)
Building BlackRock's Aladdin: "We literally pulled three all-nighters in a row. We modelled the entire portfolio. It was very painful, lots of coffee. But when we were done – wow.” (New Statesman)
— Jennifer Ablan (@jennablan) April 8, 2018
Sewing really looks like the Anthony Jenkins of Deutsche, doesn't he?
— Dan Davies (@dsquareddigest) April 8, 2018
You could own Russell Crowe’s leather jock strap. (Bloomberg)
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