As we put it a few days ago while mocking Saudi Arabia’s attitude toward “collateral damage” from its bombing runs in Yemen, “you can’t make an omelette without breaking a few eggs.” Well, over at Deutsche Bank, John Cryan has been busy crushing whole cartons worth.
From sweeping job cuts, to reorganizations, to eliminating the dividend, Cryan has been a veritable wrecking ball since taking the helm from co-CEOs Anshu Jain (who is gone) and Jürgen Fitschen (who is leaving).
Just yesterday, Europe’s largest bank announced that the dividend would be scrapped [11] as part of “Strategy 2020.” Here are some other key points from Cryan’s “plan”:
- CET 1 ratio: at least 12.5% from the end of 2018
- Leverage ratio: at least 4.5% at the end of 2018 and at least 5.0% at the end of 2020
- Return on Tangible Equity (RoTE): greater than 10% by 2018
- Adjusted Costs (total noninterest expenses excluding restructuring and severance, litigation, impairment of goodwill and intangibles and policyholder benefits and claims) of less than EUR 22.0 billion by 2018
- Cost/income ratio (CIR) of approximately 70% in 2018 and of approximately 65% in 2020
- Risk Weighted Assets (RWA) (excluding regulatory inflation following regulatory changes expected to be at least EUR 100 billion by 2019/2020) of approximately EUR 320 billion at the end of 2018 and of approximately EUR 310 billion at the end of 2020.
Well, the hits just kept coming on Thursday as Deutsche Bank made good on a promise [12] to write down billions in assets in its investment bank and retail- and private-banking operations. The Q3 loss: €6 billion.
That’s a record, and Cryan understandably described it as “highly disappointing.” The pain was largely attributable to “impairments of goodwill and other intangibles,” or, put differently, “marking things to reality.’” As a reminder, here's what DB said earlier this month:
An impairment of all goodwill and certain intangibles in Corporate Banking & Securities (CB&S) and Private & Business Clients (PBC) of approximately EUR 5.8 billion. This is largely driven by the impact of expected higher regulatory capital requirements on the measurement of the value of these segments as well as current expectations regarding the disposal of Postbank.
And here's what the writedown looks like in the context of previous quarterly results:
[13]
So yeah, nothing good about that. Other highlights from the report: investment banking revenues were marginally higher Y/Y with fixed income holding up. Overall revenues were down 7%. Here are Goldman's summary bullets:
- FX moves aside, (i) FICC down -25% q/q and up +20% y/y – the y/y results falls from +20% to +5% y/y if we adjust for CVA gains, CVA methodology changes and FVA impact; (ii) equities fell 20% y/y (and 40% q/q); (iii) advisory -8% y/y. All-in, this is a solid result y/y, compared to reported averages thus far helped by (1) the weak Euro and (2) low base effect. We await company clarification on the composition of the FICC result.
- IB revenues up +3% y/y, with the US$ strength (~+14% vs € y/y) contributing substantially.
- Divisional PBT, on an underlying basis: (1) CB&S --45% y/y; (2) GTB +15% y/y; (3) PBC: 53%y/y ; (4) AWM:-15% y/y (5) non-core unit lost €278 mn headline
- B3 CET1 ratio up 10bps to 11.5%, this contrasts to the 11% the company expected as of October 7. This discrepancy is driven by the reversal of previous dividend accruals in line with the announced elimination of the dividend.
- Stated TBVPS fell 1%, to €38.99 putting the stock on 0.7x P/TB.
And now for the fun stuff. As part of the "new" strategy (which Morgan Stanley thinks looks a lot like the "old" strategy), the bank will exit 10 countries including Mexico, Norway and New Zealand, and move trading operations from Brazil to global and regional hubs.
Additionally, Cryan will cut a total of 35,000 jobs. As WSJ notes [14], "the overall head count reduction includes 9,000 full-time jobs, 6,000 external contractors and 20,000 additional roles through the disposal of assets." Deutsche will also dump a host of assets including its Postbank retail unit.
But don't worry, because as John Cryan said, "Deutsche Bank does not have a strategy problem."
That's probably true. It's hard to have a strategy "problem" when you have no strategy at all.
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Bonus humor for those who know something about Austrian black swans [15] (via Bloomberg):
- Deutsche Bank wrote up Heta Asset Resolution claim by EU24m
- Doesn’t give reason for write-up
