Cryan's Overhaul

Rearranging the Pieces at Deutsche

Deutsche Bank DPA
Deutsche Bank could be in for a wholesale management reorganization.
  • Why it matters

    Why it matters

    John Cryan, the new co-chief executive of Deutsche Bank, Germany’s largest bank, is considering an extensive restructuring program to return the bank to profitability.

  • Facts

    Facts

    • John Cryan took over as Deutsche Bank’s co-CEO from Anshu Jain on July 1. He will become sole CEO once Jürgen Fitschen leaves next May.
    • Mr. Cryan is reported to be thinking about completely abolishing the bank’s Group Executive Committee, its second level of management.
    • The bank’s current management structure is highly complex and has led to the duplication of some activities and caused confusion about responsibilities.
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John Cryan, the new co-chief executive of Deutsche Bank, was clearly speaking from the heart in his welcome letter to the bank’s employees.

“We absolutely must wean ourselves off the proliferation of committees,”  Mr. Cryan wrote on July 1, the day he replaced Anshu Jain as chief executive of Germany’s largest bank. “Of course, committees can sometimes play a useful role, but they cannot be used as a substitute for personal accountability.”

It was one of many reform promises in the letter. But behind the mild-sounding language appears to be the most far-reaching restructuring of top management in a decade.

According to two insiders at the bank, Mr. Cryan is considering completely removing the Group Executive Committee, the so-called GEC, which is a broad second-level of managers below the bank’s decision-making management board.

The management board itself may also get a makeover. Mr. Cryan is considering reorganizing the board so that all four of the bank’s operating divisions once again have a representative. Thousands of lower-level administrative jobs are also expected to be cut.

Deutsche Bank has declined to comment on the speculation.

The management reorganization is just the latest sign that Mr. Cryan is serious about cutting costs and overhauling the bank’s culture, structure and business model, which critics say has been in urgent need of an overhaul since the 2008 financial crisis.

Mr. Cryan would be using the restructuring program to tackle a problem that his predecessor, Anshu Jain, also had his eye on.

“You can already see the first signs of his idea of how he wants to change the culture at Deutsche Bank,” Alevizos Alevizakos, a London-based banking analyst with Keefe, Bruyette & Woods, told Handelsblatt Global Edition.

One of Mr. Cryan’s goals is to “flatten the organization” by removing some of its top management levels, he added.

Deutsche Bank’s costs are higher than those at many of its global peers. Its cost-income ratio, a measure of its costs relative to its revenue, is around 85 percent – far higher than many U.S. and European rivals with a cost-income ratio closer to 70 percent.

Mr. Cryan, who gained a reputation as a tough cost-cutter during his time at Swiss bank UBS, plans to unveil his full plans for the bank by the end of October, but some of the most drastic restructuring moves have already come to light.

Handelsblatt reported earlier this week that Deutsche Bank was pulling out of its private client and retail banking businesses outside Europe, including selling a nearly 20-percent stake valued at more than €3 billion in China’s Hua Xia Bank.

Reuters news agency reported Thursday that Deutsche Bank will also be severing ties with commodities trading. The bank is leaving the London Precious Metals Clearing company, a consortium it helped create in 2001.

Mr. Cryan has also taken personal responsibility for clearing up the thousands of remaining lawsuits and regulatory investigations pending for wrongdoing in the run-up to and following the 2008 crisis, which have cost the bank more than €1 billion per year for three years.

The new mantra at Deutsche Bank is to slim down, cut costs and remove businesses that are not profitable or show no signs of contributing significantly to the bank’s future.

“We do not have to be all things to all people,” Mr. Cryan has told employees. “Where we encounter marginal business opportunities or businesses with poor prospects or business lines that are not controlled to the standards we demand, we will exit them, even if this means closing them down.”

 

John Cryan AFP
John Cryan is rigidly reforming Deutsche Bank. Source: AFP

 

If he moves forward with the latest board restructuring, Mr. Cryan would be tackling a problem that his predecessor Mr. Jain also had his eye on.

The bank’s complex management structure has led to a duplication of work. That proves expensive and results in a lack of clarity over responsibilities and excessive bureaucracy.

The Group Executive Committee, which is made up of the management board and various other managers who spearhead the bank’s divisions and global regions, was set up in 2002 by the bank’s then-chief executive Josef Ackermann.

The board was made up of 13 members at that time, but the GEC grew rapidly over the years as central departments such as strategy, law and compliance were also included, so that by the end of 2014, the committee had 22 members; it still has 19 members today.

Gutting the GEC could mean that some managers are promoted.

Of the bank’s four business divisions, only two are currently represented on the management board – the bank’s business with private and corporate customers, and its payment transactions division. After the GEC is abolished, Mr. Cryan could ensure that the management board also includes representatives from the investment banking and asset management divisions. Other departments could be dropped or combined.

The bank’s complex structure has driven up costs. Managers complain bitterly that, on top of their own costs, they have to help finance ever-increasing costs of the bank’s head office.

Even some employee representatives believe there is scope for job cuts in administration. The reforms that Mr. Cryan are promoting are expected to cost thousands of jobs.

 

Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt am Main. Laura De La Motte is an editor at the Handelsblatt finance desk and a specialist banking correspondent. Christopher Cermak is an editor covering finance for Handelsblatt Global Edition. To contact the authors: maisch@handelsblatt.com, cermak@handelsblatt.com and delamotte@handelsblatt.com

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