Deutsche Bank: cutting to greatness never works

Deutsche Bank’s plan to create a new non-core unit, housing €50bn of assets largely from its markets and banking businesses, is just more of the same old Deutsche restructuring plan, warmed over for a new management team. If a non-core unit, cuts to costs, simplification of business lines, a dash of IT spending and a focus on the best businesses didn’t work when Deutsche stock was at €30, why would it work at €6?

  • By Owen Sanderson
  • 18 Jun 2019
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There are sound reasons why investment banks struggle with turnarounds. Their main assets are people and information, in contrast to operating business that make real things and own real equipment.

Once an investment bank starts attracting noise of its decline, the top performers start looking for the exits. Focus shifts from teamwork to claiming credit for revenues or cost control; politics and backstabbing, never exactly minimal in this industry, intensifies.

If there are structural opportunities to capture, competitors with more stability will jump on them, while the bank facing a turnaround plan will dither and struggle to hire. Investment in people and new capital commitments can be a struggle if there’s a broad redundancy programme in place.

In the revenue generating trenches, a plummeting stock price does not encourage bankers to work harder and turn around the business, it encourages them to look elsewhere, and catch a bid that will buy them out of what is left of their shares. It’s more about catching the last chopper out rather than manning the stockade.

The shift from revenue generation to self-preservation happens instantly, and is quickly followed by underperformance. But the departures of staff only start to benefit the cost line well down the road. Revenue falls faster than costs, always. Keep up the bunker-mentality for long enough, and bits of the bank that looked perfectly good before end up tainted with the same smell of death as the rest of the business.

Actually, on pure league table terms, the resilience of much of the Deutsche franchise is astonishing. The bank has been deep in restructuring mode since at least 2015, when Anshu Jain was forced out of his job running the place, and arguably for years before that.

But in core businesses like global leveraged finance, European debt capital markets, and global credit trading, it still retains much of its aura, and a market position that commands respect. It has managed to keep paying top performers below the radar, despite shareholder-friendly rumblings about slashed bonus pools (a tightrope successfully walked by the equally hard-pressed RBS when the UK firm was at the nadir of its turnaround).

And the new plan deserves nuance. There are no details yet on how hard the latest round of cuts will hit the bank’s staff or its ability to commit capital.

Transferring a book of assets which no longer generate revenue to a different division may simply be a device to highlight to shareholders what’s still good about Deutsche, by breaking out the divisional reporting differently. If that’s the case, it shouldn’t make much difference — the more thoughtful analysts and long-term DB shareholders already have it in the price — but by the same token it won’t do much harm either, and might help tart the bank up for future M&A activity.

Where banks have successfully pulled off a strategic U-turn — UBS in 2012, Morgan Stanley in 2015 — these have been characterised, above all, by speed and vision. Both banks forced through deep cuts to fixed income accompanied by a strong sense of what kind of institution they wanted to be; enough of a vision to bring their senior bankers with them.

But it must be a once-and-for-all process. Each time a bank restarts its cut-and-focus operation, it loses credibility — with staff and with investors alike. Deutsche has been in revamp mode for so long that it’s hard to see how yet another round of more of the same could help.

So what is the right route to a new and successfully reborn Deutsche Bank? Like the old joke goes, I wouldn’t start from here.

  • By Owen Sanderson
  • 18 Jun 2019

All International Bonds

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 JPMorgan 329.19 1505 8.44%
2 Citi 302.82 1293 7.76%
3 Bank of America Merrill Lynch 259.71 1092 6.66%
4 Barclays 235.37 968 6.03%
5 HSBC 192.36 1061 4.93%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 38.80 175 7.35%
2 Credit Agricole CIB 36.89 155 6.99%
3 JPMorgan 29.35 74 5.56%
4 UniCredit 24.81 134 4.70%
5 Bank of America Merrill Lynch 24.60 69 4.66%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 JPMorgan 9.98 67 9.69%
2 Morgan Stanley 9.41 44 9.13%
3 Goldman Sachs 8.72 45 8.47%
4 Citi 6.91 54 6.71%
5 UBS 5.28 29 5.12%