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Deutsche Bank's CEO just said something that should frighten the bank's employees
REUTERS/Kai Pfaffenbach
(Deutsche Bank CEO John Cryan addressing the bank's annual general meeting in Frankfurt, Germany.Thomson Reuters)
Deutsche Bank's profits in the second quarter nosedived to just 20 million euros, or $22 million, from 800 million euros in the same period last year.
The results were affected by a tough environment for European banks, and a range of restructuring-related charges, as new CEO John Cryan looks to clean up the bank's act.
The bank took goodwill impairments of 285 million euros, restructuring and severance charges of 207 million euros, and litigation charges of 120 million euros.
The bad news for the bank's staff: The restructuring effort may be about to accelerate.
Cryan said in a statement (emphasis ours):
"We have continued to de-risk our balance sheet, to invest in our processes and to modernize our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring."
He said something similar in a note to employees (emphasis again ours):
"Here I would like to speak plainly. If this weak economic environment persists, we will need to be still more ambitious in our restructuring. We will do everything in our power to accelerate the measures we have already planned."
We've previously written about how Cryan has the toughest job in banking. There are 160 projects ongoing as part of the implementation of the bank's Strategy 2020. The bank has decommissioned 500 applications in technology and has reduced the number of relational databases it maintains to four from 50.
The bank is restructuring its operations in its home market, closing 188 branches and cutting 3,000 workers. It has reached a "turning point in employee numbers," according to Cryan, with headcount falling in the quarter despite bringing in 900 employees who were previously external contractors.
Deutsche Bank has exited some parts of the securitized debt-trading market and cut its emerging-markets debt trading business. It is halfway through pulling out of the countries it plans to exit, and it has withdrawn from Russia.
And now, Cryan is suggesting that the restructuring could become "more ambitious."
Deutsche Bank isn't alone in this regard. Morgan Stanley and Goldman Sachs also said earlier this year that they may cut more jobs if the market environment remains challenging.
But Deutsche Bank has had a particularly tough run of late. It had to assure the market that it could pay the coupon on its bonds earlier this year, a remarkable position to be in for a bank of its size. The bank's share price is down by more than 40% in 2016. Edward Misrahi, the founder and chief investment officer of Ronit Capital, said recently that Deutsche Bank was his No. 1 short trade.
Cryan is unperturbed, however, and is pushing ahead. In a call with analysts, he said (emphasis ours):
"At Deutsche Bank, we are undertaking as much restructuring as possible in 2016 despite the burden of lost revenues and the added expense in the year. Not to do so would simply perpetuate our structural inefficiency and delay the achievement of our fundamental goal of returning to sustainable profitability. We'll not deviate from taking tough decisions just to flatter results in the short-term. We did this in the past and it led to many failed restructurings."
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