With the share price languishing at its lowest levels since the end of 2016, when there were still some doubts about whether Germany’s biggest lender would be able to secure additional funding, or avoid a bailout from the German government, this morning’s news that CEO John Cryan has lost his position appears to be a pretty brutal verdict on what was, and probably still is a thankless task in turning around the fortunes of Germany’s largest bank.
Back in 2015 John Cryan had the unenviable task of turning around a bank that had become a byword for over-expansion, along with some weighty legacy issues inherited from a previous management that threatened to overwhelm it.
The fact that he was able to avert a German government bailout was no mean feat as he embarked on a five year restructuring plan that involved the loss of 26,000 jobs by 2018, the withdrawal from 10 countries, as well as the cutting of 6,000 IT consultants along with plans to dispose of its Postbank subsidiary. He did manage to secure €8bn of new funding back in April 2017, something that looked very unlikely towards the middle of 2016.
It would appear that problems around implementation as well as an inability to stay the course on these plans, along with a failure to return the bank to profit quickly, was causing significant concern at senior board level.
The change of mind around the disposal of Postbank was a case in point as these plans were shelved in an attempt to try and focus much more on Germany’s domestic retail market, while reducing the reliance on its investment banking division which was struggling to perform, due to lower revenues as well as a difficult 2017 trading environment.
In spite of the change of heart regarding the integration of Postbank into the Deutsche Bank (DE:DBKGn) brand, this was also proving to be difficult to implement in a timely fashion.
With so much speculation in recent months about John Cryan’s future, and his ability to implement his turnaround plan which is behind schedule, the news that Christian Sewing, the head of the retail division, would be replacing him shouldn’t have been too much of a surprise, given recent reports that Deutsche Bank had been touting for Cryan’s replacement, with Standard Chartered (LON:STAN) CEO Bill Winters and UniCredit's (LON:0RLS) Jean-Pierre Mustier also linked with the role.
While it is welcome that the uncertainty around John Cryan’s position has been resolved the fact that the appointment has been made internally suggests that there were few if any takers to pick up what is probably still perceived to be a poisoned chalice of a position.
The fragmented nature of the new management structure doesn’t exactly inspire confidence either with Garth Ritchie and Karl von Rohr named as deputy CEO’s to Christian Sewing whose previous job as head of retail appears to be struggling with the job of absorbing Postbank.
This may help explain why the shares are only up just over 2% in early trade as investors mull the likelihood of any significant improvement with the same personnel in place, albeit with different job titles.
The biggest question that will inevitably arise from this new appointment will be in how any new management strategy takes shape. Will Sewing focus on retail, which is low margin and a highly competitive market or cut further in the investment banking division? The fact that they have gone with Sewing would suggest the former, which makes it odd that all the chatter in recent weeks was at seeking an investment banker to replace Cryan.
It would appear that for now investors appear to perceive these management changes as less of a new broom, and more of a case of moving the deckchairs on a slowly sinking ship, with the shares rising on the removal of the uncertainty around Cryan.
New management now need to deliver on a long term plan or we could well see this morning’s rally unravel quite quickly.
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