In his first letter to employees, John Cryan gave a frank assessment of the bank’s regulatory and legal woes, saying the path ahead would be bumpy.SEBASTIAN DERUNGS/AFP / Getty Images
A new executive's first letter to employees is usually an upbeat missive filled with motivational rhetoric and exciting goals to be achieved through joint effort.
Not so for John Cryan, who took the helm at Deutsche Bank AG last month. In a letter to the firm's 100,000 employees, Mr. Cryan wrote that the reputation of Germany's largest lender had been damaged by "serious misconduct." Its decision-making was "inward-looking and bureaucratic." Its costs were "swollen," technology "antiquated," and businesses "too diversified and too complex."
Nor was the path ahead smooth. "I am not going to tell you that all will be sweetness and light in the coming months," he concluded.
Mr. Cryan's frank assessment is a reflection of the mess now facing the bank after months of troubles that include a record fine, a management shuffle, withering criticism by its regulator and a new investigation into its conduct.
His task is an enormous one: He must fix the bank's relationship with regulators and repair its business model by slashing costs, jettisoning divisions and shedding staff. And he must chart a profitable course for the bank at a time when the broader financial industry is struggling with ultralow interest rates and much tighter supervision of its activities.
Deutsche Bank's most recent woes began in April, when it paid $2.5-billion (U.S.) in fines to United States and British authorities for its role in the rigging of the London Interbank Offered Rate, or Libor, the largest penalty of any bank implicated in the scandal. The same month, a new strategic plan from the bank was panned by investors. By June, its co-chief executives said they would step down.
The bad news wasn't over: A confidential report from Germany's financial regulator – written in May and leaked in July – contained blistering criticism of the bank's handling of the Libor scandal and cited "major failures" by its management to prevent misconduct.
Now, the bank is facing a new criminal probe by U.S. authorities related to possible money-laundering by clients in Russia. That comes in addition to two other ongoing criminal investigations, one focusing on the manipulation of the foreign-exchange market and the other on possible sanctions violations.
By most accounts, Mr. Cryan, 54, is a very smart, no-nonsense numbers guy. A British native, he was chief financial officer of Switzerland's UBS from 2008 to 2011 before taking a senior role at Temasek Holdings, Singapore's state-owned investing firm. In 2013, he joined Deutsche Bank's board and became head of its audit committee.
For now, Mr. Cryan is co-chief executive officer, but he will become the sole leader of the bank next year. Until June, Anshu Jain and Juergen Fitschen were the bank's co-CEOs. But as the lender's troubles mounted, Mr. Jain stepped down and Mr. Fitschen announced he will leave in 2016.
Mr. Cryan "knows he's got to restore confidence in the road map," said Christopher Wheeler, a banking analyst at Atlantic Equities in London. "He's not the kind of guy who stands on the trading floor like Anshu would and rallies the troops. He will win hearts and minds by the process – bit by bit by bit."
The first part of that process will be reining in costs and streamlining the bank's sprawling operations. On a conference call in late July, Mr. Cryan said the bank will be "strict in eliminating businesses, exiting countries and terminating client relationships" that do not generate adequate returns.
Its latest earnings provided a bright spot for the bank: In the second quarter, profit more than tripled from the same period in 2014 to €796-million ($1.1-billion) thanks to robust revenues from its investment bank and lower taxes.
But even those results underline the broader challenge. The earlier strategic plan released in April, derided by investors as inadequate, aimed to shrink the investment bank's balance sheet, trimming its sails. The plan also envisioned closing 200 retail branches and selling Postbank, a separately branded retail arm of Deutsche Bank.
For a better sense of what Mr. Cryan has in store for the bank, investors will have to wait until late October. Mr. Cryan remains committed to the April strategy endorsed by the board, but he "wants to take the summer and early autumn to decide how to best execute those decisions," a bank spokesman said.
Meanwhile, Mr. Cryan has promised to clean up the bank's sprawling legal mess and prevent such problems from happening again. "Resolving these issues is a personal priority," he said on the earnings call. "Closing down opportunities for misconduct to recur remains a critical goal."