After two years at Deutsche Bank and five years in charge of the corporate and investment bank, Anshu Jain is going. He’s being replaced by John Cryan, a corporate financier by trade and the former CFO at UBS. Cryan left UBS in 2012 and had been quietly waiting in the wings at Deutsche since joining the advisory board in 2013.
Jain is leaving at the end of this month (although he will stay on as a consultant until the end of this year). Here’s what will happen next.
1. Actual changes will be made
Anshu Jain was a strategy man, say analysts at J.P. Morgan. His strength was devising a strategy, not carrying one out.
By comparison, J.P. Morgan’s analysts say Cryan is “bottom-up execution oriented.”
If Jain was slow to implement his strategy, Cryan will not be. Changes will come soon to Deutsche.
2. There will be a cultural purge
Deutsche Bank recognizes that it has a problem with culture. This is why Colin Fan, head of Deutsche’s corporate and investment bank made that video last year declaring that Deutsche would no longer tolerate traders who were “boastful, indiscreet or vulgar”.
Cryan is widely known as mild-mannered, unerringly polite, and viciously rational. With him at the helm, Deutsche’s wilder realms will become less feral. Michael Dee, a former Morgan Stanley banker and ex-senior MD at Temasek (where Cryan worked after UBS), says the real problem at Deutsche is the “self perception and self-analysis of individuals in the middle of the organisation”. Expect this self-perception to change significantly as Cryan gets to work.
3. Anshu’s army will slip away
Anshu Jain took over Deutsche’s sales and trading business in 2004. He became head of the investment bank in 2010. That gave him plenty of time to build a system of patronage within Deutsche. Anshu’s so-called ‘army’ now finds itself without a chief.
Headhunters point that one of Jain’s key lieutenants – Colin Grassie – has already been ousted. Grassie joined Deutsche’s fixed income business in 2005 and spent the next ten years rising through the ranks to become chief executive for the UK and Jain’s right hand man.
4. Entire divisions will be closed
When Anshu Jain made a presentation on Deutsche Bank’s strategy last week, he reiterated Deutsche’s intention to exit whole business lines – but didn’t say exactly which they would be. As an ‘execution specialist’ Cryan is expected to act decisively to exit these (still unclear) business lines from August, when the roll-out and implementation of Deutsche’s new plan is due to begin.
Ken Moelis, chief executive of Moelis & Co., told the New York Times that Jain is “intellectually honest and disciplined,” that he, “won’t look at a problem and say it’s not a problem”. In other words, Cryan will make some difficult decisions.
5. The retail bank will be seriously trimmed
While Deutsche’s fixed income bankers might be fearful about Cryan’s plans, it’s Deutsche’s retail bankers who could have most to fear. Goldman Sachs analysts and others point out that fixed income currencies and commodities (FICC) trading is actually Deutsche’s highest ROE business – suggesting that Cryan would be foolish to hack away at it too wholeheartedly.
JPMorgan’s analysts suggest that it’s Deutsche’s sprawling retail business that really needs attending to. The bank needs to sell its retail operations in Spain, Italy, Poland and Belgium, they say.
6. The US fixed income business will be seriously trimmed
Deutsche’s fixed income professionals are not entirely safe, however. Morgan Stanley analysts point out that Deutsche’s investment bank uses twice the balance sheet of Goldman Sachs to extract the same level of profit and that this is a key area for Cryan to address.
Dirk Becker, an analyst at Kepler Chevreux in Frankfurt, says that Deutsche needs to focus on improving its return on tangible equity, and that this will mean severely curtailing its fixed income sales and trading business – especially in the US.
7. Pay across the investment bank will fall, although deferred bonuses will benefit from a higher share price
Cryan is a costs man. He cut costs at UBS and he is expected to do the same at Deutsche Bank.
J.P. Morgan analysts point out that Anshu Jain missed targets on Deutsche’s previous cost saving. “Investors need to see evidence on cost management,” they say. With visible cost savings Cryan’s priority, Deutsche investment bankers can expect to have their pay squeezed. “Everyone there is going to get paid less and it will be hair-shirt time like at UBS,” predicts one senior fixed income headhunter.
Deutsche’s senior investment bankers, who have their bonuses deferred for five years, can at least draw some comfort from today’s 8% jump in Deutsche’s share price – providing it endures.
8. Staff will leave voluntarily
With the Jain era coming to an end, it seems inevitable that some people at Deutsche will decide that now is the time for a change. Senior staff have already been quitting Deutsche, seemingly of their own accord. Expect a lot more of this – especially if Cryan decides to move any London jobs to Frankfurt.
9. LIBOR stones will be more vigorously turned
Will Cryan’s arrival lead to a re-examination of Deutsche’s LIBOR wounds? In theory, Deutsche’s LIBOR penance was done with its $2.5bn fine in April. But a bad smell continues to emanate from some aspects of the case – not least Deutsche’s attempt to hire Tom Hayes, the ex-UBS trader currently in court accused of masterminding the LIBOR affair. Christian Bittar, a senior trader at Deutsche who being personally fined $17m by the FCA is said to have made far greater revenues and bonuses from trading than Hayes ever did. It’s Bittar who allegedly attempted to recruit Hayes to the German bank.
10. Deutsche Bank staff will be skeptical of senior management’s statements
Can you trust what senior management say? If you’re at Deutsche you might want to think twice. There were reports in April that Cryan was going to replace Jain. Deutsche strongly denied them.
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