Analysis: Will Deutsche Bank’s €8.0b Cash Call Reverse the Group’s Fortunes?

The group's latest cash call is Mr. Cryan's best chance to date to facilitate a turnaround for the lender.

Deutsche Bank’s Chief Executive Officer (CEO) John Cryan is building up for a move splash in 2017 after the group’s latest cash call of €8.0 billion ($8.5 billion). The lender is in the midst of a broad-based restructuring plan.

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Deutsche Bank’s fresh cash call, and fourth in seven years, is the latest sign that Cryan’s ambitious turnaround is underway and that the beleaguered CEO will not go quietly into the night. The CEO recently shot down any talks of a potential merger deal, citing other initiatives that the lender will focus on, possibly signaling big moves to come for the lender in 2017.

Deutsche Bank
Reuters, Deutsche Bank Headquarters in Frankfurt

Deutsche Bank’s 2017 agenda has soldiered forth despite some headwinds from US regulators. However, Mr. Cryan put to bed any rumors in the near-term explaining, “We have other things to do,” in a banking conference in Berlin last week.

Deutsche Bank has also engaged in multiple capital increases over the past few years, which has served as fuel for its broad-based restructuring strategy. For some, its most recent efforts may be the clearest sign yet that the $8.5 billion capital increases could rekindle talks of potential mergers, a development Cryan firmly deflected.

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Investor confidence in focus

Investor confidence has been key to the group’s fortunes and development, which seemed to reach a nadir in the aftermath of its year-end earnings a year ago. Deutsche Bank also recently went lean with its bonus pool, cutting it a full 80 percent this month in a move that would affect upwards of 100,000 employees. Additionally, the bank called for wide cuts to its staff, estimated at 6 percent of its fixed income staff and 17 percent of its equities personnel globally.

Since stepping into the role in 2015, Mr. Cryan has had one of the toughest jobs in the business, being tasked with authoring a turnaround for the bank’s lagging business in the United States and Europe. More recently, he has embarked on an increasingly ambitious recovery plan that he hopes will help transform the bank into a more sustainable construct moving forward.

In 2017 however, investors were given an early-year boost following a year-end earnings report that showed losses had narrowed to just -$1.35 billion, down from -$6.8 billion in the year prior. This was the largest endorsement yet that the plan put into place might be succeeding or starting to take shape, as Mr. Cryan himself had repeatedly pressed for caution and patience in authoring a turnaround.

Cash Money

However, the advent of over $8.5 billion on hand could help allay immediate concerns over investor angst. It is unclear what Mr. Cryan plans to do with the funds, though past actions suggest more of a cost-cutting methodology along with a continued push towards digitalization and a ‘leaner and meaner’ approach to its global operations.

Deutsche Bank
Bloomberg, Deutsche Bank’s CEO John Cryan

Mr. Cryan is aware of the perception such moves can cause in the investing community, as well as Deutsche Bank’s place in the banking hierarchy, not just in Europe. The bank is only a few months removed from a recent settlement for $7.2 billion with the US Department of Justice, following the mis-selling of mortgage-backed securities. The aftermath saw Mr. Cryan publicly reaffirming Deutsche Bank’s capital strength, attesting to the severity of the situation.

Investors are looking for some reason for hope in 2017 and its all on Cryan to deliver.

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