Deutsche Bank AG's shares dropped sharply Monday, losing almost
10% of their value as the battered European banking sector came in
for fresh punishment.
The German lender's shares are now down almost 50% since
Co-Chief Executive John Cryan made his first public appearance in
his new role, in late October in Frankfurt and London.
Shares of European banks have been slammed amid investor
concerns about their capital buffers and ability to navigate
topsy-turvy markets.
Monday was another brutal day, with Deutsche Bank shares falling
9.5%, to €13.82, in high-volume trading. The Stoxx Europe 600 banks
index dropped 5.6%. Greek banks in particular took a beating, with
the three biggest banks by assets all seeing share losses of nearly
30% for the day.
Mr. Cryan, seven months into the job, has expressed optimism
that Deutsche Bank is on track with plans to shed its habit of
disappointing shareholders and resume paying a dividend as soon as
2018, for fiscal year 2017. His "Strategy 2020" restructuring
update in October was meant to reassure investors that the bank had
a solid plan to slim down, clean up its legal messes and make
money.
He has said that revenue declines in some areas, while jarring
to investors and employees alike, are inevitable for a bank that
has reorganized its biggest divisions, exited businesses and cut
clients. Deutsche Bank has sought to make clear it has the
liquidity it needs to pay optional coupons to bondholders, a
concern some credit analysts have raised.
After the close of European markets Monday, Deutsche Bank said
in a statement that it believes it will be able to pay €350 million
($392 million) in coupons investors expect at the end of April. The
pressure that prompted the bank to reiterate that position
reflected how nervous investors have become.
"Not every day is easy," Mr. Cryan told reporters at a Jan. 28
earnings news conference in Frankfurt. "But we can see the light at
the end of the tunnel."
Still, investors seem concerned by what darkness remains. The
share decline is just one metric by which Deutsche Bank stands out,
even in a field of battered bank stocks.
Analysts and investors see the German lender, which runs
Europe's biggest investment bank, as too reliant on trading
revenue. It lacks a powerhouse retail or private-banking operation,
unlike its biggest Swiss and U.K. rivals, which have more
substantial and stable non-trading businesses to fall back on.
The bank faces an overhang of billions of dollars in unresolved
legal fines, including potentially big liabilities it can't yet
estimate.
"John Cryan still brings a lot of credibility," Nomura banking
analyst Jon Peace said Monday. He has a buy rating on Deutsche Bank
shares. "But you've not seen the bulk of improvements yet. They
need to get on with that as quickly as they can."
Mr. Peace said that a general lack of risk appetite for bank
stocks has triggered an investor "muscle memory" from 2008, when
rapidly worsening macroeconomic factors hit shareholders and bank
clients alike.
In early January, as Deutsche Bank shares dropped below €21,
traders in the bank's London offices riffed that one guidepost for
Strategy 2020 had instantly been clarified, according to employees.
But the share price near €20.20 came and went, so the joke was
short-lived.
Deutsche Bank's dominant investment-banking division has been
split in two since Mr. Cryan took the helm. Senior management teams
have been reshuffled.
On the evening of Jan. 20, executives from London and New York
who run Deutsche Bank's global trading business gathered for dinner
at a small Italian restaurant in Manhattan. It was the first
off-site meeting of the global markets executive committee since
the restructuring. Garth Ritchie, a longtime senior manager in
equities, had recently taken the reins of the global markets
business.
The mood was somber. A few hours earlier, Deutsche Bank
directors had signed off on fourth-quarter financial results,
weighed down by billions of dollars in litigation and restructuring
charges, and a revenue decline in the investment bank.
The numbers were deemed bad enough to compel a nighttime news
release out of Deutsche Bank's Frankfurt headquarters, warning
investors about a fourth-quarter loss one week before the scheduled
earnings date.
The bank's American depositary shares fell in response.
Some managers at the dinner questioned why investors seemed
unconvinced by Deutsche Bank's restructuring strategy, particularly
as it affected the investment bank, according to people familiar
with the evening's discussion. One executive described what seemed
like "a complete loss of faith" and an overreaction by investors
who seemed not to factor in cost-cutting forecasts the bank had
discussed publicly.
Under the circumstances, the managers also talked about the need
to drill down into their teams and gauge morale.
Besides the share plunge, which has dramatically reduced the
value of their deferred compensation, some employees have the added
stress of regulatory monitors eyeing their trades, compliance and
risk controls, Deutsche Bank insiders say. Frequent public
commentary by Mr. Cryan and others about reduced bonuses doesn't
bolster the mood, they say.
At the January dinner, Mr. Ritchie introduced the evening's
speaker, retired U.S. Army General Stanley McChrystal, who had led
U.S. and international forces in Afghanistan and the Joint Special
Operations Command. Mr. Ritchie had invited him to the Deutsche
Bank dinner to talk to global-markets executives about the need for
strong communication and focus during periods of stress, according
to people who were present.
Mr. Ritchie had been counseling his lieutenants to think like a
general in a war zone, and avoid letting market reactions and
doubts distract them from their goals, Deutsche Bank employees
say.
Analysts and investors say it could be another six months or
even a year before outsiders get a clear picture of how such
initiatives are succeeding.
"We need more clarity about the earnings base in the investment
bank. It all depends on the investment bank," says Ingo Speich,
senior fund manager at Union Investment in Frankfurt, which holds
Deutsche Bank shares. "I believe you have to give the supervisory
board more time."
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
February 08, 2016 15:55 ET (20:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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