What's wrong with Garth Ritchie?

The way Garth Ritchie tells it, things are ok at Deutsche Bank's corporate and investment bank. In September, Ritchie said the franchise was "competitive" and had been "gaining share". "I’m very confident that we’ll remain Europe’s number one investment bank for the foreseeable future,” he told Bloomberg in October.

Deutsche certainly seems to be happy with Ritchie. In September, the bank renewed his contract for five years. Today, however, the Financial Times reports that questions about Ritchie's future have been revived by two members of the German bank's supervisory board, one of whom is complaining that the performance of the investment bank is "dismal" and that it makes no sense for Deutsche's fixed income-focused investment bank to be run by someone from equities.

"Ritchie is an equities guy who ran a second rate equities business"

For Ritchie, a 49-year-old father of two who earned €3m last year (even before being promoted to sole head of the investment bank in April), the complaints will be nothing new. Claims that Ritchie is the wrong person to run Deutsche's sales and trading business have been flying around ever since 2015 when then-CEO John Cryan chose him to replace Colin Fan as head of the markets business, and to become co-head of the investment bank alongside Marcus Schenck. Ritchie's detractors have been reiterating the same claims ever since. - That he ran a mediocre equities business at Deutsche and that he should never have been given control of the fixed income "crown jewels", let alone have been made head of the whole investment bank in a battlefield promotion following the arrival of CEO Christian Sewing earlier this year.

On one level, there's something in this. Under Ritchie's leadership from 2008 to 2015, Deutsche Bank's equities business did little to improve its market share. In 2004 it ranked fourth globally, by 2015 it ranked sixth in Europe. That's not exactly progress. However, Ritchie's supporters suggest his critics are barking up the wrong tree.

Firstly, there is nothing wrong with an equities guy running an entire global markets franchise. If there was, then Ted Pick, the former Morgan Stanley equities sales and trading head who successfully turned around the bank's fixed income business after the financial crisis would not now be in the running to become Morgan Stanley's CEO.  Pick, a longstanding equities professional, trimmed 25% of Morgan Stanley's fixed income traders, cut product lines in commodities, FX and European credit, and transformed Morgan Stanley's fixed income business into a player that (last year at least) outshone Goldman Sachs. In a world where fixed income trading and equities trading are converging due to electronification - and where equities trading is leagues ahead - having an equities guy in charge of the whole business can be a positive. Ritchie's background in flow derivatives and his time running cash equities may be just what Deutsche's fixed income business needs.

Accordingly, senior DB insiders say Ritchie has been instrumental in updating the technology used by the bank's fixed income trading business. "Ritchie has been a massive proponent of the improvements we've made to our fixed income architecture and a lot of the focus we have on algo trading across the investment bank has come from him," says one senior trader. Another says Ritchie is "well placed" to oversee the improvement of Deutsche Bank's electronic trading systems, precisely because of his background in equities.

Ritchie's supporters also challenge the narrative that he ran the equities business badly. "To be honest, we now have an equities business that is even worse than when he ran it," says one trader. "When Ritchie ran equities, it was as profitable as it has ever been," points out another of the bank's markets professionals. "The equities market is a challenged market generally," says one DB insider. "The top two or three people make money and below that it's very hard. It's to do with the size and scale of the business. We have a big advantage in Europe compared to our peers, but the U.S wallet is massive...[where DB is weaker]."

The fixed income business is shrinking, but gaining market share

For all the criticism of Deutsche Bank's fixed income sales and trading performance in the third quarter, Ritchie's claim that Deutsche is gaining share also bears up to scrutiny. Yes, Deutsche Bank's fixed income sales and trading revenues fell by 15% year-on-year in the third quarter - more than any other bank but Credit Suisse. But Deutsche's revenues were down only 4% in the third quarter compared to the second, while rival banks like Barclays were down by more over the same period (6.5%). In this sense, Deutsche's third quarter might be construed as a turnaround, even if revenues didn't rise. This bodes well, especially given that in the first half of 2018 intelligence firm Coalition said that Deutsche became the joint global leader (with J.P. Morgan and BAML) in credit trading.

Most importantly though and despite the carping, Ritchie appears to have the support of powerful people within the investment bank. The Financial Times says that Deutsche Bank chairman and kingmaker Paul Achleitner himself put his "full weight" beyond the renewal of Ritchie's contract. Senior fixed income traders at the bank say that Ritchie is fair and capable and has stabilized the business, which has seen fewer exits than might otherwise have been the case. "He has respect from key people in the key roles in the FICC franchise and he has the right people in those roles," says one senior trader. "He's not the sort of person who gives jobs to his mates." Another describes Ritchie as, "consistent and intellectually honest - he doesn't favour one team or product because he likes someone. He doesn't have an agenda".

Ritchie failed to make changes at the top 

For some, however, Ritchie's failure to make big changes to the fixed income business is part of the problem. "He's made no really major changes to the fixed income management team," says one DB managing director. "He's very good from a leadership perspective and is great in terms of camaraderie, but beyond that he is relying on the same people we're relied upon before. The FICC business needs a shake-up, but he doesn't know the business well enough to do this." Ritchie himself might disagree - people like James Davies have been given new roles under his leadership.

Deutsche Bank declined to comment for this article, but insiders caution against reading too much into negative press surrounding their boss. "Ritchie can come across as very easy-going, but he's very smart and shrewd," says one. "He has a core set of confidants from his former equities days that he keeps around him and he has managed to stay in place for a long time.

The same insider notes that Ritchie has been supposed to be leaving for sometime, but never does. "Marcus Schenck was supposed to be taking over from him, but it ended up being the other way around." After a period in the wilderness (chilling out in the South of France), Schenck - who was Ritchie's co-head until May - is now joining Perella Weinberg as an investment banker. One Deutsche Bank trader says Ritchie is infinitely preferable as head of the CIB: "I would not have wanted to lose Garth to have Marcus for sure – that would have been a very bad outcome for trading indeed." On a day when Deutsche's traders have seen more money wiped off their deferred bonuses as the bank's offices are raided in connection with money laundering allegations, this is something to keep hold of, at least.

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