Deutsche Bank CEO warns of harder and faster restructuring

John Cryan of Deutsche Bank gestures as he speaks during the Sueddeutsche Zeitung finance day conference in Frankfurt on March 2, 2016

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Deutsche Bank CEO John Cryan

A year after John Cryan became co-chief executive of Deutsche Bank, the former UBS banker presented its results for the three months to June 30, telling staff in letter published on the bank’s website July 27 that the quarter “could hardly have been more challenging”.

He added: “There were some exceptionally difficult moments and, after the ‘Brexit’ referendum in the UK, Europe stands at a crossroads. The initial financial market turmoil now lies behind us, but the challenges remain.”

Outlining its progress on implementing its new strategy, albeit in a quarter when group revenues fell 20% on the back of the tough environment and its strategic initiatives, Deutsche Bank cited the agreement in Germany over the loss of roughly 3,000 jobs, the derisking of its non-core assets, and investment in its controls and infrastructure as achievements during the three-month period.

Cryan said he was “satisfied” with the progress the bank is making but added: “However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring”.

The recent turmoil, and the market doubts that dominated the trading landscape in the run-up to the vote on June 24, hit client activity and took their toll on Deutsche Bank’s trading and investment banking businesses.

Revenues dived across the German bank’s sales and trading, capital markets and advisory units in the second quarter, leaving them sharply down at the halfway point of what the bank said would be its “peak restructuring year”.

In the bank’s global markets unit – forged in the first quarter when corporate banking and securities was split into separate divisions to house sales and trading activities, and corporate finance and transaction banking – sales and trading revenues dropped by 23% during the second quarter to €2.5 billion, while pre-tax profits dived more than €1bn from a year earlier to just €28 million.

Deutsche Bank said in its interim report for the quarter that global markets results were down on the back of “lower client activity impacted by economic and political macro uncertainty and concerns surrounding the UK referendum on EU membership. In addition, the decrease was in part a result of Deutsche Bank’s implementation of Strategy 2020 measures including de-risking and footprint rationalisation”.

Equity sales and trading revenues plummeted by 31% to €720 million, worse than any fall posted on Wall Street. Deutsche Bank said: “Cash equities and equity derivatives revenues were lower, driven by lower client activity mainly in Asia.”

Debt sales and trading revenues dropped 19% to €1.8 billion, making Deutsche Bank the first big investment bank to post a year-on-year fall from debt trading during the second quarter, its US rivals having all posted gains.

In Deutsche Bank’s corporate and investment banking unit, equity underwriting revenues plunged 51% to €124 million, in line with the falls posted by US investment banks. Advisory revenues almost halved to €74 million, the lowest sum earned from that business since the first quarter of 2013. Debt underwriting revenues declined 13% to €409 million.

Profits from corporate and investment banking fell 27% to €432 million.

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