Deutsche Bank’s sustained trading slump ratchets up pressure on CEO

Bloomberg

Deutsche Bank AG’s sustained trading slump is increasing pressure on Chief Executive Officer John Cryan to prove he can win back investment-banking market share.
Revenue at the securities unit slumped about 22 percent in the final quarter because of persistent low volatility in markets and muted client activity, the bank said in a statement. Analysts had expected trading revenue to rebound from a year earlier, when fears about the bank’s financial strength had caused a slump in market share at the unit.
Cryan is getting no closer to delivering the expansion that investors are demanding after unveiling the bank’s third strategy revamp in as many years in March and pledging to return to “controlled growth.” The executive is losing the support of some large shareholders, people with knowledge of the matter said in October, ahead of a dismal third quarter in which the trading business under-performed US peers.
“Cryan has staked his tent on the investment bank so the investment bank has to perform for him,” said Robert Kendrick, a London-based credit analyst at Schroder Investment Management Ltd. “Deutsche Bank doesn’t really have anything else. If they’re not an investment bank, then they’re nothing.”
Deutsche Bank fell as much as 5.9% after the release, the biggest drop in almost a year, and declined 5.2% in Frankfurt. The bank’s leadership has “perhaps another two quarters” to prove that its strategy works, said Ingo Speich, a fund manager at Union Investment, which owns about 0.23% in Deutsche Bank. “Cryan is responsible for this strategy.”

ANNUAL LOSS
The bank, in a statement, also said it will probably record a third consecutive annual loss in 2017 after accounting for the decreased value of its
deferred tax assets in the US, a credit it can use to lower fut-ure tax payments. Deutsche Bank will take a charge of 1.5 billion euros ($1.8 billion) in the final three months to
account for the legal change.
While Wall Street banks struggled with calm conditions before the fourth quarter, Kian Abouhossein, a JPMorgan Chase & Co. analyst in London, had predicted that the firm would increase fixed-income trading by 14 percent to $1.7 billion and equities trading by 16 percent to $554 million.
The growing pressure on Cryan as well as the appointment last March of two deputy CEOs, Marcus Schenck and Christian Sewing, has fueled speculation about potential successors.
Schenck “has shown a good performance and has realistic chances to get the top job,” said Michael Huenseler, a fund manager at Assenagon Asset Management, which owns Deutsche Bank stock. Martin Wilhelm, a general manager at IfK, a fund manager with over 900 million euros of assets under management, said the executive wouldn’t make a good replacement.
The revaluation of the bank’s deferred tax assets became necessary after US President Donald Trump decided to cut the corporate tax rate from 35 percent to 21 percent. Other banks including Morgan Stanley, Credit Suisse Group AG and Bank of America Corp. have all reported that the tax reform will require them to write down their assets.