SHOULD I DESCRIBE Anshu Jain and Juergen Fitschen as “embattled” co-CEOs of Deutsche Bank? That really depends on whether or not you buy the line that they misread the signals, mis-directed the bank and have now been forced into an ignominious U-turn on capital as their ability to power their way to capital strength through retained earnings took a bit of a battering. Or whether you buy their vision of the new banking landscape and the bank’s ability to maintain a leading position within its chosen product lines.
Chatter about the bank’s capital strength and its position in the capital pecking order of European banks has been ongoing for some time. Shareholders may well moan about dilution that comes with the capital infusion but, if nothing else, the co-CEOs are offering them a choice: get out now or stop moaning, deal with your dilution and go with us on the journey to the new IB and FICC heaven, which is just around the corner.
“We are very proud of our fixed-income franchise here, Deutsche Bank ranks among the world leaders. Conditions were and are tough for fixed income. But these products are important for our clients. For that reason, fixed income remains a core business for us,” Jain said in his AGM speech.
Fitschen backed this up. “Investment banking remains key to our business outside Germany … We are firmly committed to investment banking – because it is essential for our clients. We see good opportunities to win market share in highly profitable business segments, especially at a time when some of our competitors are retrenching. Our aim is clear: we will re-shape our investment bank to produce returns sustainably above the cost of capital. To achieve this aim, we will redeploy resources toward areas of higher returns.”
So there you have it.
I’ve got to say persisting with FICC at this juncture looks to be a tough call. But even if Deutsche has no real alternatives, it’s a call with which I have some sympathy. In October I wrote a blog titled “FICC: not dead yet” outlining my view that concerns about the future of the business had been overdone. Volumes will come back and there will be meaningful capacity give-up over time. Mind you, it’s easy for me to say because I don’t have billions of dollars of capital not to mention my reputation and credibility tied up in calling it right.
We’re certainly not there yet and it’s worth noting that first-quarter 2014 FICC revenues of the top 10 investment banks fell 16% to US$22bn year on year, according to analytics firm Coalition, and have fallen consistently for five years from US$34.8bn in the first quarter of 2010 (down 37% over five years). And even if headcount has fallen with revenues, productivity decline was highest in fixed income as revenues fell by a greater amount than headcount.
WHETHER YOU DO or don’t buy the Deutsche story, one thing is clear: the bank isn’t shy about making grandiloquent statements about itself. On that measure, Jain and Fitschen certainly aren’t messing about. Fronting a bank that aspires to be the leading client-centric global universal bank, which is what Deutsche says it is gunning for, is a pretty lofty goal, albeit a craftily worded one.
Doing so at the same time as writing off all of your European competitors by stating you’re “one of a handful of banks able to deliver on this vision – and the only one based in Europe” is a punchy “up yours” to the likes of Barclays and BNP Paribas. Particularly punchy when you’re meandering your way to the end-game of your own strategic re-alignment programme.
Bearing in mind the tone of Colin Fan’s video, that cascade is going to be embedded into the traders’ skulls with a blunt instrument…
The presentations posted around Deutsche’s AGM were strong on inspirational messaging. It’s clear that senior management will be spending a lot of time “embedding”. This, of course, is a favourite word much loved by management consultants.
So we discover that Deutsche will be “embedding client centricity”, wants to “embed cultural change” and wants to “work embedded values and beliefs into performance reviews”. Client satisfaction metrics are being “embedded into the way the management board and group executive committee members are assessed and compensated”, while cultural values and beliefs “will be cascaded and embedded further by contextualising and specifying what they mean for specific businesses”. (Bearing in mind the tone of Colin Fan’s viral video of last week, that cascade is going to be embedded into the traders’ skulls with a blunt instrument …)
There continues to be a lot of focus around governance and culture. Deutsche has formulated a new set of values and beliefs, working with its top 250 people across all parts of the world. Those 250 people have been designated as rather awful-sounding “culture carriers”. People you’d want to avoid in an elevator if you ask me.
If the notion of culture carriers isn’t awful enough, the bank’s drive to improve diversity through its “female quota” has resulted in the creation of the truly dreadful sounding “female pipeline”, which the bank says is an integral part of its management agenda. I say, if it’s so important, how about appointing a woman to the executive board? The current quota of zero suggests the pipeline doesn’t yet extend to the upper echelons of the greasy pole.