The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Sunday saw Europe’s biggest bank announce the replacement of its co-CEO’s with Anshu Jain’s resignation, effective at the end of the month, to be replaced by former UBS executive John Cryan. Deutsche Bank investors certainly took the news well, with shares gaining over 7% at the market open. With Mr Jain having driven the firm towards becoming the investment banking powerhouse it currently is, does this news represent a likely move away from the riskier end of the business? If so, what would that mean for investors?
Located at 60 Wall Street, Deutsche Bank currently holds the largest office on Wall Street of any bank, and this speaks volumes as to the kind of firm that Deutsche was trying to become; global and dominant, not only in Germany but worldwide. However, there is a realisation that the firm may have become too big and too complex, leading to April’s announcement that the firm is due to shift its focus away from the investment banking business.
Unfortunately, the firm which represents the largest non-US based investment bank did not weather that news well, with the share price falling ever since, despite a strong Q1. The 27 days following this announcement saw 22% wiped off the value of the firm.
With the move away from the investment bankers of old, represented by Anshu Jain, towards leadership from someone who has very little experience in the field, it seems that Deutsche is following a route trodden by Barclays with its appointment of the retail-focused Anthony Jenkins to replace the perceived ‘fat cat’ Bob Diamond. It’s the age old question of stability versus risk, which in the mind of investors translates to low profits versus high profits (with the chance of a bad year here and there).
Unfortunately for the firm, its financials have been moving in the wrong direction, with quarterly profits and income falling in the face of litigation costs associated with the $2.5 billion fine for fixing interbank rates such as Libor and Euribor.
Thus while we may have seen a change of guard today, the problems seem to be deep rooted for the firm and a move away from the investment banking business would only be sensible if the rest of the business is sufficiently strong. That could take some time. However, the interesting part is whether investors will see today’s announcement as sufficiently momentous to bring back the positivity seen in the early part of the year which saw the share price gain 30% in Q1.