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Sunday, 22 October 2017

Snake eyes: Jain runs out of luck

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  • Deutsche Bank - Jain and Fitschen

Appointing an experienced FIG advisory banker to run Deutsche Bank arguably speaks less about John Cryan’s individual talents – broad and deep as they doubtless are – than it perhaps does about the kind of strategic perspective needed these days by leaders of banks in turnaround mode if they have any chance of navigating this fraught and convoluted period of industry restructuring and strategic re-calibration.

Even if that turns out to be the case, I doubt that Anshu Jain or Juergen Fitschen will take much comfort from it; even less that they ran out of highway so soon after the Strategy 2020 roadmap’s unveiling.

I’ve got to say, as an aside, that the timing of their announced departures was messy but, more to the point, poorly managed. It gives every impression of a bank in turmoil and close to panic mode shooting its two most senior executives in the back of the head in some sort of high-stakes blame game following an adverse reaction from shareholders and the wider world about the wonky strategy.

It could have been handled a lot better.

A strategy, let’s not forget, that was signed off by the supervisory board – including Cryan – even though it was pretty obvious that the same supervisory board and pretty much everyone else thought it was half-baked at best, and so short on detail as to be close to useless. It was also clear that it was not Jain’s preferred option, which was to ditch retail and turn DB into Europe’s Goldman Sachs. I always thought that was a slightly fanciful idea, but in any case that wasn’t where it all ended up. Where it did end up was an ignominious dead end to the co-CEOs current career chapters and the end of another failed executive experiment.

Jain is not the kind of person who’d want you to feel sorry for him; that’s just not his way. But I do feel a little sorry for one of the banking industry’s greatest talents, who’s graciously given me a fair amount of his time over the past decade and a half and who just happened to reach the corner office at a bad time.

They say it’s all about timing; and boy was the timing bad. I imagine the pressure on the co-CEOs to sort out the thorny issues on the agenda was immense. It was – and is – always going to be a question of time; the nature of the issues just didn’t lend itself to short-term solutions or short cuts. That was part of the problem: a mob baying for immediate results made the task nigh on impossible.

Writing on the wall

“… This is surely the last throw of the dice for Jain,” I wrote on May 27 – hence the reference in the title. “If I were a betting man, I would imagine the odds of him making it to the end of his contract are lengthening. What am I bid to go short?” It’s easy to say: “I told you so,” but I take no credit for being any more prophetic than the next man given what had been happening, although I will take credit for being consistent.

I’ve been nay-saying for years about Jain’s chances of making it through the minefield of profound industry re-regulation, DB’s under-performance, evolving investigations and reviews – not to mention the political issues that go with the territory in Germany. (“… no matter how much Anshu Jain may feel he deserves the CEO slot at Deutsche Bank … I just can’t see him interacting well with Germany Inc, the union involvement, the shareholder committees and the political dimension …” I wrote as long ago as March 2011. That, at least, was spot on.)

So what now? Well, changing the CEO won’t change anything. “We struggle to see how the change in CEO at Deutsche Bank makes it a long-term winner at the moment,” analysts at Berenberg Bank said in a note this morning.

“In the short term, we would not be surprised to see the shares outperform as the hope for greater change closes some of the 30% discount to TBV. However, the longer-term issue about the core profitability of the business needs more than a new CEO to resolve. We also find it hard to see how the lengthy handover helps bring more radical change or remove the uncertainty about Strategy 2020.”

I reckon that sums up the general reaction.

Room for manoeuvre

Will Cryan want to radically alter the new strategy? If he does get supervisory board support for that, will it actually slightly undermine him and the board, given that they were party to signing off the original version and they’ll be seen as indecisive and somewhat clueless? Will he ramp up the risk-weighted asset reduction and gut the investment bank with more conviction than the current plan allows for? How quickly can that happen before it meaningfully becomes ROE accretive for the group? If at all.

So many questions, which will surely confound shareholders and the broader investor community into the medium term. I note DB’s share price shot up 6% at the open today. That’s taking a LOT on trust. I’m not sure I would be putting on big naked DB long stock positions at this point in time. I’d certainly be flat pending further news.

From a broader industry perspective, this is a fascinating month: Brady Dougan, CEO of Credit Suisse and Peter Sands, CEO of Standard Chartered, both step down from their positions this month, so Jain will be just one of a trio of banking chiefs walking towards their next adventures.

When it comes to DB and CS in particularly, the step-by-step comparisons between John Cryan and Tidjane Thiam will be simply mouth-watering. Will we be witnessing a race to see who can gut their investment banks quickest? I can’t wait.

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