(Bloomberg) -- John Cryan looks happy, maybe too happy.
The chief executive officer of Deutsche Bank AG, clad in a crisp gray suit, is sipping a macchiato on the 34th floor of the lender's headquarters in Frankfurt. He's just returned from a trip to the U.S., where he spoke at an investor conference in New York and visited technology companies in San Francisco. For the first time in months, Cryan says, he wasn't peppered with questions about the litany of legal scandals that have bedeviled Germany's No. 1 bank.
The drama of 2016—Deutsche Bank's annus horribilis, when it lost almost half its market value and confronted existential questions about its future—is fading. The bank has settled its biggest cases and replenished its coffers with €8 billion ($9.3 billion) in fresh equity.
So Cryan, a wonkish 56-year-old Brit, is relieved to be talking finance instead of litigation. “The perception seems to be that I do all the cleanup and then never have the fun,” he says on this June afternoon as he sits in a conference room with panoramic views of Germany's financial capital. “Now I'm spending half my time with clients. I just did a meeting this morning, and it was, ‘Right, we want to talk about the following five things.' And it was all about their business. It's more fun now.”
Fun? That's not a word that jumps to mind when contemplating life inside Deutsche Bank. This is an institution that's recorded more than €8 billion in losses over the last two years, even as many rivals, especially in the U.S., have bounced back. An aggressive trading culture has damaged its reputation with investors, clients, and regulators. In June the bank's traders were on course to lose as much as $60 million in a wrong-way derivatives bet, suggesting problems with its risk management practices. And now Deutsche Bank has been swept up in investigations around President Donald Trump as U.S. authorities and some lawmakers seek information about his financial dealings.
In a series of exclusive interviews in May and early June, Cryan and nine other members of the group's management board, plus Supervisory Board Chairman Paul Achleitner, opened up about the bank's missteps over the years. They made their case that the worst is over and it's time to get back to business. They also explained the linchpin of their latest effort, Project Oaktree: a renewed commitment to Germany, Europe's largest economy. The homecoming is about more than bolstering the income statement—it's an attempt to rekindle values the institution lost when it transformed from a staid corporate lender into an investment-banking juggernaut in the years before the 2008 crash.
“Deutsche Bank had lost touch, it had lost its grounding,” says Achleitner, 60, the seasoned German finance hand who tapped Cryan to overhaul the bank. “Project Oaktree is the realization that even if you want to be a global actor, you've got to have your roots in good old Germany.”
Deutsche Bank's twin-towered headquarters in Frankfurt exudes the polished minimalism of classic German design. The lobby is an airy, angular space framed by translucent walls glowing with soft white light. Overhead, a 36-ton sphere of intertwined stainless steel bands envelops a pair of bridges that connect the two buildings. A mirrored wall whooshes open Star Trek-style to reveal the elevators to the executive suites occupying the upper floors.
For all the sleek modernity, history matters at this 147-year-old institution—especially the recent variety. Deutsche Bank's story turns on its decision not to pay heed to the lessons of 2008, until now. Rather than reshape its investment bank for the regulatory and capital demands of a postcrash marketplace, it maintained its powerhouse fixed-income trading unit and other capital markets businesses, eager to grab market share as rivals retrenched. The strategy backfired as Deutsche Bank fell out of step with its peers and was ensnared by legal troubles and fines.
Now Cryan, at long last, is rebuilding the bank from the ground up. He's strengthening its legal controls, rewiring its information technology systems, taming its trading culture, and rebalancing its customer base, all while trying to boost sales from a shrinking enterprise. A reclamation project on this scale has rarely, if ever, been attempted at a bank as vast and complex as the one Cryan heads, with its €1.6 trillion in assets and 98,000 or so employees. Getting all this done will take years, warn Cryan and his team.
“Time is not on Deutsche Bank's side,” says Michael Huenseler, a money manager at Assenagon Asset Management SA in Munich, which holds shares in the lender. “But if a bit of calm returns to the firm, maybe they can pull it off.”
Cryan's ability to move quickly is hampered by the bank's IT, which is so “antiquated,” to use his word, that many of its systems aren't performing important functions with the speed or efficiency they should. Cryan says Deutsche Bank's IT is five years behind what its rivals have. “It's not as good as it should be,” he says. “It's not as timely as it should be. We have to go across too many systems.”
When news leaked last September that the U.S. Department of Justice wanted Deutsche Bank to pay $14 billion to settle a probe into its sale of toxic mortgage-backed securities, the lender suffered its worst hemorrhage of liquidity since the crash. At one point, private banks and money managers pulled $10 billion in a single day, according to a person with knowledge of the outflow. Even though Deutsche Bank was sitting on about €200 billion in cash and liquid assets, its computer system was too slow to report to regulators exactly how much it held on a daily basis.
Since then, Cryan has laid the groundwork for a comeback that's brought the bank something elusive: a measure of stability. He's vowed to remake the debt-trading powerhouse into a leaner, less risky institution—one that relies more on corporate banking, asset management, and consumer banking in Germany.
Now, with the recapitalization, Cryan has the money to execute his plan, and with Deutsche Bank's shares up almost 4 percent this year as of July 24, investors appear ready to give him a chance. “Cryan has done a good firefighter job,” says Oswald Grübel, ex-CEO of UBS Group AG and Credit Suisse Group AG and a former boss of Cryan's. “Now he has to rebuild the investment bank and improve the domestic operations.”
The respite may prove short-lived if Cryan can't deliver on his turnaround, the bank's third push in as many years. When Cryan shifted from Deutsche Bank's supervisory board to take charge as co-CEO in July 2015, he inherited one restructuring program from his predecessor, Anshu Jain, and then unveiled a refined version three months later. In the wake of the toxic mortgage case, which was ultimately settled for $7.2 billion in December 2016, Cryan and his team drafted yet another blueprint that reversed key initiatives of the prior plans.
For all the about-faces, Cryan hasn't offered investors a breakout vision for growth and profitability. He's still trying to squeeze growth from a mix of businesses that last year produced the bank's weakest top line since 2010. Like Jain before him, he's vowed to cut costs. Cryan's target: about €3 billion by 2021. To a large extent, the bank's performance remains chained to the vagaries of the debt markets. In the first quarter net revenue from fixed-income sales and trading alone accounted for almost twice the combined sales of Deutsche Postbank AG, its German retail lender, and its asset management division.
Some battle-scarred shareholders are skeptical the revamp will work. “The bank's new strategy, which is hardly new, has yet to provide any evidence that it can be successful,” says Helmut Hipper, a portfolio manager at Union Investment, a major shareholder in the lender. “Deutsche Bank now has enough capital to implement change, but problems could resurface at any time.”
Cryan's list of things to worry about is a long one. In recent years, Deutsche Bank has made more than $300 million in loans to Trump for real estate projects. Democratic lawmakers are pressing the bank to disclose details about those transactions and other financial dealings by Trump and members of his family. In a letter sent to Cryan on May 23, California Representative Maxine Waters, who's called for Trump's impeachment, and others on the House Financial Services Committee asked whether the loans were guaranteed by the Russian government or in any way connected to Russia. The bank's lawyers responded in a letter to Waters that financial privacy laws prevented it from voluntarily disclosing details about client transactions. In his interview with Bloomberg Markets, Cryan also cites client confidentiality when asked about the loans.
Other requests may be harder to refuse. Robert Mueller, the special counsel investigating Russian meddling in the U.S. presidential election, has broadened his inquiry to include a look at business dealings of Trump and some of his associates, according to a person briefed on the matter. Mueller's team has subpoenaed financial records from at least one bank, which it didn't identify, a second person says. Monika Schaller, a Deutsche Bank spokeswoman, declined to discuss any U.S. information requests. “We've said from the beginning that we must obey the law,” she says. “We remain committed to cooperating with authorized investigations into this matter.”
Among Deutsche's investment bankers, two years of tumult and slashed bonuses have gutted morale. At their offices in London, senior and junior bankers alike roll their eyes every time management unveils another restructuring plan, insiders say. Deutsche Bank used to be a place where industry and innovation were amply rewarded. At bonus season, a tractor-trailer would pull up in front of the London trading hub loaded with brand-new Aston Martins for star performers. Since early 2016, however, employees say there's been little incentive to work long hours or dream up new offerings for clients.
With Deutsche Bank's legal woes diminishing, bankers expect healthier bonuses for 2017. An internal survey conducted this spring found that morale had steadied after a three-year drop. Yet Cryan and his deputies know what a blow it will be if the bank doesn't deliver. “What really counts is being sustainably successful, paying and motivating people properly, and being out of constant media attention,” says Chief Administrative Officer Karl von Rohr.
To reach that goal, Cryan must overcome a dilemma at the center of the bank's income statement: How do you boost sales at the same time you're trimming products and markets, slashing expenses, and investing heavily in IT projects? In accordance with Deutsche Bank's earlier restructuring plans, it's already been right-sizing its global markets division, and that's taken a toll. The bank's fixed income and currencies business has underperformed its rivals for five straight quarters, data compiled by Bloomberg show. In the first three months of this year, for instance, Deutsche Bank's fixed-income trading unit posted an 11 percent increase in revenue, less than half the 24 percent average gain notched by its five biggest U.S. counterparts. The main reason: In 2015, the bank decided to withdraw from trading securitized assets such as mortgages, a business that's been jumping recently.
The bank has slipped in other areas. Before 2014, it was a top-three underwriter of bonds in emerging markets, vying with HSBC Holdings Plc and Citigroup Inc. for domination of a business that regularly issues more than $1 trillion in debt annually. It fell to 12th last year, the data show. In 2016, Deutsche Bank slid down the rankings in arranging loans across Europe, the Middle East, and Africa.
Cryan plans to reverse this trend by pivoting toward corporate clients and away from institutional investors such as hedge funds. The idea is that catering to companies will bolster mergers advice and securities underwriting, which would offset diminishing trading income. So the bank is combining the global markets unit and the corporate finance teams again after splitting them up in 2015. The new entity, called the Corporate & Investment Bank, will be co-led by Marcus Schenck, Deutsche Bank's former chief financial officer, and Garth Ritchie, a 21-year veteran of the trading floor.
Under the new alignment, Schenck, based in Frankfurt, looks more like Deutsche Bank's future and Ritchie, located in London, its past. For years the trading floors in the City churned out so much revenue that Deutsche Bank became known as the “flow monster.” When Jain became co-CEO in 2012, he reinforced trading as the bank's raison d'être. But the credit bonanza was over, a victim of record-low interest rates and new rules that forced banks to stockpile capital to cover fixed-income liabilities. Jain's bid to grab share as competitors reshuffled their own securities businesses didn't deliver the value he hoped for. A spokesman for Jain declined to comment.
That's swung the balance of power to Schenck, 51, a former mergers and acquisitions banker at Goldman Sachs Group Inc. with the build and drive of a long-distance runner. He's managing the all-important relationships with clients, plus he's preparing to shift hundreds of personnel and thousands of customer accounts to Frankfurt from London. Deutsche Bank may shift client assets amounting to the equivalent of a fifth of its balance sheet to the German financial hub, according to a person familiar with the matter. Ritchie, 49, a silver-haired South African who played rugby in prep school, has been left running financial products and trading operations from a base that may continue to shrink as Brexit takes its toll on the City. Thomas Mayer, Deutsche Bank's chief economist from 2010 to 2012, says the shift makes sense but should have been done long ago. “They have lost so much time,” he says.
Playing catch-up, Cryan also reversed Jain's decision in April 2015 to sell Postbank, which has 13 million customers and about €100 billion in deposits. Integrating Postbank's IT platform with the bank's own retail arm will be difficult, not to mention expensive. So, too, will be competing in a market driven by state-backed lenders. Profit margins were thin even before the European Central Bank moved interest rates into negative territory.
Cutting costs won't be easy at an institution where a quarter of employees are civil servants, a legacy of the firm's roots in the German postal service. While loan default rates in Germany are low, the market's unforgiving economics are one of the reasons Deutsche Bank built a global investment bank in the first place. “There's no risk in Germany,” says Assenagon Asset's Huenseler, “but there's no income either.”
Yet Cryan believes Postbank is worth the trouble because Deutsche Bank may be able to use its deposits to fund loans for corporate clients that yield more interest income than mortgages. Investors are watching closely to see if regulators grant the lender permission to channel Postbank deposits to other parts of the company. The bank declined to comment on when it might receive approval.
The other big move is selling a minority stake in its asset management business through an initial public offering. Roiled by the spread of automated portfolio management and plunging fees, the industry is in the middle of a shakeup. Nicolas Moreau, head of Deutsche Asset Management since October, says the IPO would bring in the capital and talent to get the unit battle-ready. “When John, Marcus, and I looked at the business, we saw an organization not fit for purpose to participate in sector consolidation,” says Moreau, 52, who spent 25 years at French insurance giant AXA SA.
None of Cryan's strategic moves will make much difference if he doesn't purge Deutsche Bank of its chronic legal difficulties. In an era when global lenders have racked up about $300 billion in penalties for myriad misdeeds, Deutsche Bank has stood out as a repeat transgressor. It's been penalized in cases ranging from rigging benchmark interest rates to money laundering for rich Russians, and it's standing trial in Milan for allegedly colluding with a client to hide hundreds of millions of euros in losses. This April the U.S. Federal Reserve fined the bank's U.S. arm $137 million for “unsafe and unsound” practices in the foreign exchange markets. The Fed also penalized Deutsche Bank almost $20 million for failing, before March 30, 2016, to maintain an adequate program for complying with the Volcker Rule, a provision of the Dodd-Frank Act that bars banks from trading with their own money.
Against that backdrop, the question remains: For all of Cryan's efforts, can Deutsche Bank outrun its past?
Ever since he was a thirtysomething M&A banker at UBS Warburg Ltd. in London, Cryan has cut a sober and somewhat earnest figure, recalls Simon Adamiyatt, a onetime colleague there. Cryan shunned the industry's penchant for overselling deals to clients and sometimes lost mandates as a result. “John wasn't a banker who was going to win at any price,” says Adamiyatt, who's known Cryan for 17 years and is now the CFO of Earthport Plc, a London fintech company. “He was data-driven, objective, and prudent.”
Cryan flies commercial and prefers to run things on the go from his iPad Pro instead of the big desk in his corner office. Fluent in German thanks to a spell in Munich in his late 20s, he's been able to connect with a domestic audience in a way that Jain, who didn't master the language, couldn't. In his interview with Bloomberg Markets, Cryan dismisses points he disagrees with as “nonsense,” but he also displays a wry sense of humor. “We can't prove it yet, but we genuinely do think German banking can be profitable,” Cryan says during a discussion on Postbank, sporting a thin smile. “You've got to be really efficient, and guess what Deutsche Bank has never really been? But we think we can do it.”
Unlike many finance chieftains who strive not to say anything controversial, Cryan seems to relish going off-message. No sooner did he become CEO than he lambasted investment bankers for expecting lavish pay packages for simply turning up to work and “playing with other people's money.” He called the lender “inward-looking” and “bureaucratic” and at one point pined for the “relatively easy life” of running a retail bank free of Deutsche Bank's confounding complexities.
Named UBS's CFO in August 2008, Cryan honed his management chops in the years following the subprime mortgage crash. He was part of a leadership team that restructured the Zurich-based bank, fired thousands of employees, and weathered $37 billion in losses. In 2012 he joined Temasek Holdings, the sovereign wealth fund of Singapore, becoming its president for Europe. But he didn't take long to return to banking. The next year he joined Deutsche Bank's supervisory board.
Within six months of his taking over as co-CEO with Jürgen Fitschen, Cryan was back in crisis mode. After Deutsche Bank reported a €6.8 billion loss for 2015, investors began questioning its ability to pay coupons on a type of debt called contingent convertible bonds, or CoCos. Banks can suspend interest payments on the bonds, also known as additional Tier-1 securities, or even convert them into equity under certain conditions to meet capital requirements. Yields soared.
Deutsche Bank eventually sold more than $1 billion in U.S. dollar- and euro-denominated bonds in early 2016. But the bank had to pay investors higher interest rates than it did in 2015, so the offerings did little to calm anxieties that Deutsche Bank needed to raise more capital.
The International Monetary Fund delivered the next blow in June when it found Deutsche Bank was “the most important net contributor to systemic risks” among global lenders—prompting media outlets across Europe to question whether the bank had become, as several put it, “dangerous.”
Then, on Sept. 15, Chairman Achleitner convened a two-day strategic retreat for the bank's supervisory and management boards at a luxury hotel in Milan. For Achleitner, a ruddy-faced man who drops the word “boom!” into his conversations, the gathering was an opportunity to foster a dialogue between the bank's two governing boards at a pivotal moment in its recovery. But no sooner had the members settled into a working dinner than the chairman received a shocking call. Word had leaked that the U.S. Justice Department had offered to settle the mortgage-backed securities case for $14 billion in fines and reimbursements for consumers. It was more than twice as much as Deutsche Bank had set aside for potential legal bills. With that, the conference ground to a halt.
Over the next two weeks, speculation that Deutsche Bank might need state aid pinged around the markets. To squelch any hint the bank was running low on funds, it made doubly sure its ATMs didn't run out of euros. Nonetheless, hedge funds such as Izzy Englander's Millennium Partners started liquidating their derivatives positions at a rapid clip. Stockholders bailed as well. On Friday, Sept. 30, Deutsche Bank's shares plunged to an all-time intraday low of €8.83, a 55 percent drop from the beginning of the year.
Schenck, who was in New York meeting with Justice Department officials, watched the carnage with mounting anxiety. “There was a Friday at the end of September where we had really material liquidity outflow,” he says. “And we didn't really know on that weekend to what extent this was just end-of-the-quarter activity, where clients were optimizing their own positions, or to what extent it was them running away from the bank? I was asking myself, ‘Hmmm, where is this all going to lead to?'”
That weekend, Achleitner was celebrating his 60th birthday in the Austrian Alps. A fixture at the World Economic Forum in Davos, he sits on the boards of Daimler, Bayer, and Allianz Global Investors. Many of his friends from Germany's corporate elite joined him and his family for the festivities, according to people with knowledge of the gathering.
While several German corporate chieftains rallied to Deutsche Bank's side, Achleitner was taken aback by the ferocity of commentators and politicians who whipped up doubts about the bank. “Our grounding in German society wasn't as strong and resilient as I would have liked,” he says. It was an important lesson.
For their part, Cryan and his deputies made call after call to clients, counterparties, and suppliers to reassure them the bank was strong. Many corporate clients stuck with the lender.
As the weeks passed, investors came around to the idea that the settlement would be far lower than $14 billion, and by Dec. 23, when the Justice Department and Deutsche Bank agreed to half that amount, the bank's shares had already gained almost 70 percent from the low. Cryan had also wiped away the last toxic remnants from the financial crisis. Over two years the bank recorded €5.4 billion in losses as it wound down assets it had designated as “noncore.”
With both the mortgage case and the junk pile gone, Cryan could go to investors with a story of renewal. He slotted Deutsche Bank's €8 billion rights offering between Milan-based UniCredit SpA's €13 billion share sale in February and the French presidential election in May. The bank even brought on a large new shareholder, Chinese conglomerate HNA Group Co., which amassed a stake of almost 10 percent, overtaking Qatar as Deutsche Bank's biggest investor. The capital boost lifted confidence.
“Tactically, Cryan has executed very well,” says Barrington Pitt Miller, an analyst with Janus Henderson Group Plc, a London-based firm that holds shares in the bank. “The capital debate has been put to bed, and he wound down the noncore balance sheet, which is a significant part of the story.”
But the sting of another damaging legal case had shown just how much work Deutsche Bank still had to do.
The precrisis boom years didn't just make Deutsche Bank a force in investment banking. It also bred an edgy trading culture and a Byzantine corporate structure of largely unaccountable fiefdoms. Scores of business units in global markets, the private bank, and other divisions developed their own products, strategies, and bespoke IT systems to execute them. “We grew very fast with mercenaries and acquired teams, and they grew banks within banks,” says Ritchie. “Our biggest mistake was not putting those teams together.”
The so-called Russian mirror-trading case revealed the price of this laxness. Between 2011 and 2015, traders in Deutsche Bank's Moscow, London, and New York offices executed trades with no economic value other than to transfer $10 billion out of Russia for wealthy clients, a violation of money laundering laws, according to New York state's Department of Financial Services. The bank failed to properly scrutinize clients, maintain accurate accounting records, rate the risks of countries, or spend the money to hire qualified compliance personnel, even though it “was on clear notice of serious and widespread compliance issues dating back a decade,” DFS Superintendent Maria Vullo said in a Jan. 30 statement.
The DFS and U.K. Financial Conduct Authority fined the bank $629 million, and the Department of Justice is still conducting a criminal probe. Under a consent order with New York's DFS, Deutsche Bank hired an independent monitor to regularly evaluate its efforts to improve its anti-financial crime (AFC) systems. The bank now hosts five independent monitors.
The woman charged with straightening out the bank once and for all is Sylvie Matherat, Deutsche Bank's chief regulatory officer. A French lawyer who shares Cryan's taste for bluntness, Matherat used to supervise regulation and financial stability issues as deputy director general at the French central bank. She joined Deutsche Bank in 2014 and the management board the following November. She's got a lot of work to do. The bank's compliance program is so rudimentary that Matherat is still mapping out precisely how every business in the investment bank reviews the propriety of its transactions. Asked if she's concerned that problems may remain hidden, she says it's a difficult question to answer. “I hate surprises, but you don't know what you don't know,” Matherat, 55, says.
To that end, she's constructing new AFC and compliance systems and hiring hundreds of lawyers, accountants, and other experts to police the bank's businesses. For the first time, Deutsche Bank is rating every new client according to four risk factors, including the country where it operates and its industry. Matherat is also beefing up the compliance unit, a separate division charged with making sure products and personnel don't violate best practices, let alone regulations. Compliance officers and AFC staffers sit on the executive committees overseeing the bank's businesses; AFC executives can veto products or deals that don't pass muster. Deutsche's bankers grouse that it now takes far longer to get approval for transactions in murky markets and industries, such as energy.
Matherat makes no apologies for the rigors of this new era. “We should focus on the client in a sustainable way, not a one-shot deal that's soon forgotten,” she says. “The profit of today should not be the loss provision of tomorrow.”
Her efforts are entwined with Deutsche Bank's other major infrastructure project: reengineering its computer systems. This patchwork of programs is often redundant and can't “talk” to one another, a situation that wastes time and money and sows confusion. Under Chief Operating Officer Kim Hammonds, the bank is laboring to reduce its 33 operating platforms to four by 2020 and delete scores of duplicative applications. So far she's managed to shut down 12 of those platforms. But the project, which will cost €2 billion a year indefinitely, is just getting started.
Hammonds, who was global chief information officer at Boeing Co. before joining Deutsche Bank in 2013, says her primary aim is to shift most of the bank's software to cloud computing. Having everything in one place would make it easier to erase duplicative applications, link programs, and help slash €800 million in “run the bank” costs. She says she's about 30 percent there. “This will be the foundation for all the technology that runs the company,” Hammonds, 50, says. “It will happen in my lifetime.”
Major IT projects are notorious for blowing past deadlines and running over budget. Deutsche Bank should know. In 2010 it bought Postbank for €6 billion and proceeded to fuse its computer systems with those in its own retail operation. At first the bank's leaders thought it would be a straightforward process and earmarked €600 million for the project, according to a person familiar with the effort. By 2015, costs had ballooned to more than €2 billion, and the integration still wasn't complete, according to people familiar with the matter. At the heart of the problem, Cryan says, was the decision to consolidate the two entities' platforms but let each continue to offer their own products. “It was too complicated,” he says.
Now Deutsche Bank will scrap one of the platforms instead; it's in the process of studying which one will go. “The IT will be a challenge,” says Christian Sewing, 47, head of its private and commercial bank. “But the most crucial element of the integration will be going with a simpler legal entity and one IT platform. Then I can give up a whole other platform.”
Well aware of how rapidly costs can escalate, investors and analysts are closely watching Postbank. On June 23, Citigroup Inc. analysts Nicholas Herman and Andrew Coombs highlighted potential “complications” around Postbank's integration in a note to clients. They maintained a “sell” rating on Deutsche Bank's shares.
At Deutsche bank's headquarters, stewards in black waistcoats serve cappuccinos topped with the bank's slash-in-a-square logo in powdered chocolate. Cryan appears upbeat as he finishes his coffee. Sitting in the building's upper floors, a hushed sanctum where provocative contemporary art by the likes of Louise Bourgeois and Barbara Kruger adorns the walls, it's easy to forget this is an institution in the throes of a turnaround. The tension that gripped the bank last year has given way to relief, and potential renewal.
Deutsche Bank is hiring again. In recent weeks it's beefed up its ranks in the U.S., with three more managing directors added to its mergers and acquisitions team and a dozen new faces joining the corporate finance unit. The bank's Asian operations brought on 10 managing directors as well. The wealth management unit is also tapping fresh talent. “I'm confident we can compete,” Ritchie says. “The biggest opportunity for us is in the U.S. The cost is high, but the capital market is so big, the margins are so big, that there's enough space for us.”
Reassured by the capital boost, customers are returning, too. James Boyle, head of the bank's Asia-Pacific equities unit, says balances in the prime brokerage business are expected to hit record highs by the end of 2017 as hedge funds and other investors resume trading with Deutsche Bank. Schenck, too, is optimistic: “2020, 2021 should be when you'll see the benefits of what will then be a three- or four-year journey,” he says.
Will that be soon enough for investors? While Cryan & Co. regroup, flush U.S. rivals are cranking up dividends and stock buybacks. Cryan temporarily scrapped Deutsche Bank's annual payout shortly after taking over and doesn't expect to pay a “competitive dividend” until the 2018 financial year.
Meanwhile, the ECB may conduct an in-depth review of the bank's top two stockholders, HNA Group and the royal family of Qatar, because they now own almost a fifth of the firm's stock, according to two people with knowledge of the matter. The central bank also recently found deficiencies in how the lender values derivatives, according to a person with knowledge of the discussions.
There are other items on the docket in addition to Trump-related questions in the U.S. that have touched on the bank. In Milan, a three-judge panel is weighing whether Deutsche Bank's investment bankers unlawfully used derivative trades to help the troubled Italian lender Banca Monte dei Paschi di Siena SpA conceal losses from 2008 to 2012. Prosecutors persuaded the judges to consider whether Deutsche Bank ran an international criminal association because its actions took place in several countries. At a hearing in May, Giuseppe Iannaccone, a lawyer for Deutsche Bank, said the prosecution's case didn't support the allegation that the bank was running a criminal organization. Judgment in the trial has yet to be made.
Facing hope for the future as well as potential tribulation, Cryan, with his candor and prudence, would seem to be the ideal choice to whip this sprawling institution into shape. But if his repair job flops, there are two Germans waiting in the wings. Earlier this year, the supervisory board gave both Schenck and Sewing the title of president.
Cryan says he's not going anywhere. Now that Deutsche Bank finally has some breathing room, he suggests he'd like to stick around after his contract expires in 2020. “I'm not saying I'd renew, but I'd definitely consider it.” Cryan chafes at the idea that he's just a Mr. Fix-It who lacks the talent or vision to lead a global institution such as this. With the bank committed to yet another comeback, he finally has his chance to show it.
Robinson covers finance in London. Arons covers banking in Frankfurt. Griffin covers investment banking in London.
This story is featured in the forthcoming issue of Bloomberg Markets.
To contact the editor responsible for this story: Stryker McGuire at smcguire12@bloomberg.net, Frank Connelly
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