from our magazine

John Cryan Has the Toughest Job in Global Banking

Germany Deutsche Bank
CEO John Cryan has seen Deutsche Bank's stock take a nosedive this year, especially since Britain voted to leave the EU.
  • Why it matters

    Why it matters

    Deutsche Bank, Germany’s largest, has struggled to find a sustainable business model since the financial crisis.

  • Facts

    Facts

    • British banker John Cryan took over as Deutsche Bank’s co-CEO in July 2015. This May, he became the sole chief executive.
    • Cryan has announced a five-year plan to nurse the lender back to health, including a massive restructuring program.
    • Nonetheless, investors have punished the bank’s shares, which are trading near 30-year lows.
  • Audio

    Audio

  • Pdf

 

Who’d be John Cryan? Barely a year ago, the respected British banker took charge of Deutsche Bank to near-universal applause. For relieved investors, his selection as joint CEO meant that a return to health was surely in sight for Germany’s largest bank, hit hard by scandal and falling profits. Deutsche Bank, it seemed, was again in safe hands. After all, this was a man with a global name for nursing battered banks. The markets were certainly impressed. Within hours of his appointment, the bank’s share price had risen by 8 percent.

Alas for Cryan, any such optimism now looks misplaced. Over little more than a week this summer, the bank’s share price – already down 24 percent in 2015 – plunged to an all-time low; one of its U.S. subsidiaries failed the Federal Reserve’s stress test and was condemned for poor risk management; and American regulators fined another subsidiary $6 million for failing to keep proper records. Heaping on the humiliation, the International Monetary Fund released a report warning that of all the major global banks, “Deutsche Bank appears to be the most important net contributor to global systemic risks.” Put simply, the bank’s pain shows little sign of easing.

And it’s Cryan who’s taking much of the heat, especially now that he has taken over as sole CEO after former Co-CEO Jürgen Fitschen stepped down in May. He waves off reports that he plans to quit before the end of his five-year contract, but the mood in the bank’s Frankfurt headquarters is uneasy. There’s talk of a rift with Paul Achleitner, chairman of the bank’s supervisory board, over Cryan’s management style, and investors too are asking awkward questions about Cryan’s restructuring program. His aim is to restore the bank to profitability by 2020. But, given the stream of bad news emerging from the bank’s twin towers in Frankfurt, that goal is looking ever more elusive.

To be fair, it was never going to be easy. The 10-year reign of Swiss banker Josef Ackermann as CEO, ending in 2012, brought startling profits to Deutsche Bank that wowed investors. But a once sober enterprise had morphed into a global money-making machine, an investment-banking juggernaut whose derivatives book had a nominal exposure greater even than the world’s GDP. Certainly, those profits came at a high price. Controls were lax, and respect for the law was too often patchy: In 2015, British and U.S. regulators fined Deutsche Bank a thumping $2.5 billion for its role in the Libor rate-fixing scandal, and condemned the bank for obstructing investigators. Inevitably, the reputations of senior staff took a pounding. Last summer, a shareholder revolt forced Ackermann’s successor, the flamboyant Anshu Jain, out of office.

28672_Global4_940x200_WEB

Clearly the bank needed a new direction under a new leader. Cryan – already on the supervisory board – could boast the right credentials. The son of a jazz musician, he studied physics at Cambridge University (Stephen Hawking was among his teachers) before a working stint with accountants Arthur Andersen. Switching to investment bankers Warburg’s, he earned general respect as a top-flight dealmaker in the world of mergers and acquisitions. Speaking to Handelsblatt, Cryan credits his success to a readiness to listen. “The art of banking is above all about listening to what customers want, instead of always wanting to speak,” he says.

Admirers also talked of a prodigious capacity for hard work and rigorous analysis, as well as an unfailing command of detail. “He is level-headed and sticks to the facts,” says Nikolaus von Bomhard, CEO of Munich Re. “That’s why he was always a pleasure to meet.” That’s a compliment echoed by others. Cryan, they tell Handelsblatt, seems to combine a low-key charm with a scrupulous honesty unusual in the world of banking. While working at UBS, he went so far as to warn Fred Goodwin, then head of Royal Bank of Scotland, against bidding for the Dutch Bank ABN Amro – even though ABN was UBS’ client. RBS ignored Cryan’s warning, and the result of the €71 billion takeover – the largest in European banking history – was a disaster of epic proportions, thanks to the toxic assets on ABN’s books. RBS was ruined and so was Goodwin, but Cryan confirmed his reputation as a man of principle.

Everything Cryan does is correct, but maybe the puzzle is simply unsolvable this time, says a major investor.

Cryan also shows no signs of success-at-any-price ambition or greed for lavish pay deals (it may help that his wife, Mary, is member of the DuPont family, the great American chemicals dynasty). Also not for him are the lavish trappings of CEO life. In London, where he has a Victorian home in the inner suburbs, he travels to the office by subway, and unlike his predecessors at Deutsche Bank, he prefers commercial flights – albeit in first class – to private jets. He insists on carrying his own battered leather suitcase when traveling. His one expensive indulgence seems to be his period home in Annapolis, Maryland, which he has been restoring.

Unlike many of his peers, he also finds plenty of time for enthusiasms outside work. Fascinated by flying, he has held a pilot’s license, and is also a keen patron of a London-based baroque chamber music ensemble. On occasion, he’ll treat the musicians to pizza after performances and stay on late into the night. Happily, he also speaks fluent German, a skill ascribed to a love interest in Munich in his late 20s.

Best of all, Cryan has some impressive form when it comes to restructuring banks. In the dark days of 2008, following a stint with Singapore’s state-owned investment fund, Temasek, he took on the role of chief financial officer at UBS, where he helped steer the bank through a shoal of troubles in the wake of the financial crisis, selling off assets, raising vital capital, and helping to pay off bail-out loans from the Swiss government.

What’s still unclear, however, is whether he can match that success at Deutsche Bank. An ambitious program is already under way. His five-year plan will mean trimming the bank’s payroll by 9,000 – almost 10 percent of the workforce – as its operations are simplified: Cryan aims to cut the number of investment banking customers by half. He is also slashing bonuses, and shuttering all outlets in 10 countries. Robust controls have been imposed to prevent any illegal activities, and he’s replaced scores of senior managers.

But that may not be enough to satisfy the critics. Cryan, it’s said, lacks vision; he’s too negative and a poor communicator with a glum manner (among investment bankers in London, he earned the nickname “Mr. Grumpy”). He’s also known for his tendency to offend colleagues by speaking his mind too openly.

Absorbed in the business of reorganization, he is also accused of neglecting the banks’ clients. When he first came to Singapore, top bankers in the region were disappointed he didn’t bother to socialize and make courtesy calls, concentrating instead on internal meetings. Nor does he trouble to schmooze the right people in Germany. The notables of Frankfurt and Berlin were annoyed by his skipping the inauguration of the new head of the Association of German Banks, the country’s most important financial industry organization.

 

Deutsche Bank's Share Price Woes-01

Meanwhile, new problems and uncertainties emerge. Can Cryan succeed in wooing big new institutional investors while the results of his five-year strategy remain uncertain? With its share price now near historic lows, can Deutsche Bank survive on its own or must it find a stronger partner?

And plenty of the old problems are still to be resolved. The bank’s IT is creaking badly, and it still faces a slew of lawsuits related to past wrongdoing or allegations thereof. Quite apart from the rate-fixing fiasco, the bank has been fined for violating international sanctions against countries such as Iran, and duping clients in the course of its currency trading operations. Throw in the impact of Britain’s decision to leave the European Union and the resulting turmoil in the banking sector, and the current gloom in Frankfurt is easily understood. “Everything Cryan does is correct, but maybe the puzzle is simply unsolvable this time,” says a major investor, who declined to be named.

For that matter, he must also maintain morale among his own workforce; no easy task at a time of job cuts and declining pay. A stern critic of excessive rewards in the banking industry, Cryan insists on a close tie between performance and rewards: No member of the bank’s senior management team received a bonus for last year, when the bank recorded a €6.7 billion loss. In a characteristically candid statement earlier this year, Cryan observed that the “Deutsche Bank brand isn’t resonating with clients so readily and staff morale is lower.” Last year, Cryan’s own package was said to be worth more than €2.37 million. If he can succeed in turning around the fortunes of Deutsche Bank, he will surely have earned every cent.

 

Daniel Schäfer and Michael Maisch cover finance for Handelsblatt. William Underhill is a business journalist in Oxford. To contact the authors: d.schaefer@handelsblatt.com and maisch@handelsblatt.com 

We hope you enjoyed this free article.

Subscribe today and get full access to market-moving news in Europe's leading economy.