Cryan’s blunt talk on clients jars Deutsche Bank investors

Bloomberg

Deutsche Bank AG investors have grown accustomed to John Cryan’s blunt talk since he took the helm a year ago. He’s chastised bankers for their pay and described his employer as an “endemic underperformer.”
But some were still surprised on Wednesday when the chief executive officer said unjustified doubts over Deutsche Bank’s financial strength had spooked some clients last quarter.
“He’s already made comments I’ve never heard from a bank CEO,” said Michael Huenseler, who helps oversee about 17 billion euros ($18.7 billion), including Deutsche Bank debt, at Assenagon Asset Management in Munich. “Highlighting that clients were thin-skinned may be true, but it isn’t necessarily helpful.”
Cryan is working to revive profit and meet stricter capital requirements at Germany’s largest bank, while digesting mounting fines for misconduct. Investors aren’t the only ones with a stake in his success: the International Monetary Fund said last month that Deutsche Bank’s connections to other lenders may make it the single biggest contributor to systemic risk among global banks.
As Cryan closes businesses and pulls out of countries to improve capital levels and profitability, some investors worry about the resulting loss in revenue. Should the bank’s clients balk, that could make it even tougher to earn the money needed to carry out the overhaul.

Stepping Back
“It’s absolutely essential John holds on to as much of his revenue base as possible as he goes through this very, very big change,” Christopher Wheeler, an analyst at Atlantic Equities, said in a Bloomberg Television interview. While Deutsche Bank is still “a fabulous brand,” its clients can’t ignore the overhaul and “they’re going to have to just step it back a bit until they see a calmer situation,” he said.
Deutsche Bank fell 2 percent by 10:39 a.m in Frankfurt trading, bringing the decline this year to 46 percent. Its stock trades at the lowest ratio to tangible book value among the nine largest investment banks, data compiled by Bloomberg show.
“The tough environment took its toll on our share price and on those of many other banks” in the second quarter, Cryan, 55, wrote to the bank’s more than 100,000 employees. “Doubts were raised about our financial strength. These were unjustified but they unsettled some clients and that made our day-to-day work more difficult.”
While Cryan didn’t specify which clients were shaken up, each of the four units he plans to keep saw a drop in revenue in the second quarter from a year earlier. Net income plunged 98 percent.
The company’s asset management business had 9 billion euros of net client withdrawals in the quarter, according to its filings. A decline at a unit catering to hedge funds — a key part of the equity-trading business — reflected lower average customer balances and a drop in activity, the bank said. That contributed to a 31 percent decline in revenue from equity trading, a business Cryan wants to
expand.
“Market confidence is rapidly deteriorating,” said Mark Williams, a master lecturer on finance at Boston University and a former bank examiner at the Federal Reserve. “At this point, the bank can’t wait for the sluggish European economy to bail it out.”
Debt trading revenue fell 19 percent at Deutsche Bank in the second quarter from a year earlier, even as the five biggest U.S. securities firms saw their combined revenue from that business rise 22 percent over the same period. Cryan attributed the outperformance of competitors in part to a more robust economy in the U.S., and said he expects the bank to remain the fourth-largest trader of fixed income and currencies.