With Cryan a `Lame Duck,' Analysts Split on Deutsche Bank's Path

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(Bloomberg) -- Deutsche Bank AG shares rose in-line with the broader stock market Tuesday after Chairman Paul Achleitner is said to have had talks with a number of potential successors to John Cryan, the sole chief executive since May 2016.

With restructuring set to accelerate, it’s time for change at the bank, some analysts say. They’re split on whether the appointment of another investment banker to the top post -- as suggested by the Times of London -- would be the right direction.

Deutsche Bank’s shares are down 29% this year, the worst performance on the Stoxx Europe 600 Banks index. The company’s investment banking operation has slumped, while retail banking profitability has weakened as global interest rates collapsed.

Here are the views of some analysts:

Fairesearch GmbH & Co., Dieter Hein

(Reduce, EU11.80)

“It’s not a surprise -- Cryan has been a lame duck since deputy chief executives were appointed a year ago -- but to replace him with another investment banker would not solve the bank’s problems,” Hein says by phone.

  • Deutsche Bank has the wrong strategy -- the unprofitable, costly, high-risk investment bank must be cut completely
  • Shareholders should appoint a commercial banker, somebody who has knowledge of restructuring a business
  • The problem is the strategy, and therefore Achleitner must go; “I want to convince shareholders not to vote for him again. I’ve been shocked for years at what’s been going on”

Morningstar Inc., Derya Guzel

(Buy, EU19.20)

Change could be good; “I think they will want someone, quick and aggressive, but obviously with previous experience of restructuring a company,” Guzel says by phone.

  • “A new CEO should come from an investment bank, but what Deutsche needs most is to regain trust from shareholders and customers”
  • “People expected miracles from Cryan, but he took on a wreck” -- a really tough job, much more complicated than other banks, with a huge investment bank, shrinking balance sheet and a difficult retail business
  • Most importantly, for real improvement, management will need to address shareholder capital management

Creative Global Investments, Carlo Besenius

(Buy, EU18.00)

“The rumors about the Deutsche Bank board looking to replace John Cryan as CEO, not even two years into the job are not surprising to us. However, his likely replacement is not going to change much in the forever ongoing saga of DB’s restructuring,” Besenius says in note to clients.

  • Both the board and the executives are having a very difficult time assessing the quickly changing competitive landscape; one of the problems is that there have been too many changes at the top, with more than six different CEOs in less than three decades
  • We do not think replacing Cryan will be taken as a positive, but it shouldn’t be considered as a change in direction or business strategy
  • Short-term pressures on the share price are a good opportunity for investors to buy into a quality organization that has had over a decade of digesting a tremendously overleveraged balance sheet

Accendo Markets, Michael van Dulken

Management’s inability to stem the share price decline is even more apparent when compared to peer Commerzbank, which bottomed out in 2016 and is now back close to highs of 2012-14, van Dulken says by email.

  • Questions remain about the sustainability of Deutsche’s business model, with concerns about 1Q results due in May in light of the decline reported in February, although the recent volatility spike may have offered a brief boost
  • Says DWS IPO was a success, “but was that the jewel in a no longer, post-crisis, shiny crown”
  • Given the overall track record it could be argued that a new approach is required, although it’s unclear whether Cryan’s background or his general approach is to blame

©2018 Bloomberg L.P.

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