Deutsche Bank's New CEO May Cut Trading Business - Analyst Blog
Deutsche Bank AG 's DB newly appointed co-chief executive officer (CEO) John Cryan seems to be set for revamping the bank. John Cryan , in a letter to the employees on his first day of job, hinted that he will reduce the company's trading operations.
He stated, "No longer, however, can our securities and derivatives trading businesses be so heavily reliant on long-term balance sheet usage. We cannot afford that luxury. Furthermore, reducing this reliance should not place us at a competitive disadvantage as the market has anyway already moved in that direction. We can free up capacity for growth by managing existing positions more actively, and not just those in our Non-Core Operations Unit." The intention seems a further effort to control costs.
However, focusing on core operations, Cryan mentioned that the company will continue to invest in retail and business banking, asset and wealth management and investment banking businesses.
Cryan succeeds Anshu Jain who stepped down last month . The other Co-CEO Jürgen Fitschen will eventually step down from his role, making Cryan the sole CEO of Deutsche Bank.
Deutsche Bank has been struggling under the burden of numerous litigation issues and settlements. A €1.5 billion settlement with the U.S. and British authorities to resolve charges over the bank's alleged role in manipulation of the interbank offered rates benchmarks dragged its first-quarter 2015 results lower. Notably, several other legal issues still remain to be settled.
While the company's financials are expected to be exposed to higher legal expenses in the near term, Cryan stated that he remains focused on resolving the issues and will hold employees who commit any wrongdoing accountable.
Cryan firmly looks for simplifying the bank's business model and narrowing the scope of operations. He mentioned "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."
He also revealed that the company remains committed to the Strategy 2020, unveiled in April, which includes cost saving measures and operational restructuring to bring the company's growth back on track. However, he said that an update will be presented by the end of October as he believes it will take time to review the related decisions.
While the new CEO of Deutsche Bank looks all proactive, it is really difficult to state how much the bank will gain under his leadership or to what extent the bank's performance will get a boost , given the current headwinds it is facing. As the European economy is yet to stabilize, we don't foresee any significant favorable change in the company's performance in the near term.
Deutsche Bank currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the foreign banks space include Sumitomo Mitsui Financial Group, Inc. SMFG , Erste Group Bank AG EBKDY and BBVA Banco Frances S.A. BFR . All three sport a Zacks Rank #1 (Strong Buy).