Stern words from banking’s anti-banker

Published in Business Spectator (Melbourne), 27 November 2015

DeutscheBankBankers are overpaid, bonus payments are useless and there is an inflation of fancy job titles in banking. That was the essence of a speech recently delivered at Frankfurt’s Goethe University.

Had the speaker been a sociology professor in a graduate seminar, that would not be worth reporting. But when the new chief executive of Deutsche Bank turns on his own industry in such harsh words, that is a different story.

John Cryan has been co-chief executive of Deutsche for not even five months and will only take sole responsibility of Germany’s largest bank from May next year. But the understated Brit is already making clear that under his leadership, Deutsche Bank will make a break with its immediate past — or indeed, reconnect with its history.

There was a time when the chief executives of Deutsche Bank played an important role in German public life. The legendary Hermann Josef Abs (1901-1994) was a pivotal figure for post-war economic reconstruction, a close advisor to chancellor Konrad Adenauer and negotiated West Germany’s debt relief at the London Debt Conference of 1952.

In the 1980s, Alfred Herrhausen used his role as Germany’s top banker to propose debt relief for developing countries. Herrhausen had a dual role as a public intellectual and finance expert. When I grew up in Germany (I incidentally went to the same grammar school as Herrhausen), we looked up to him as a new type of enlightened business leader.

After Herrhausen’s assassination by terrorists of the so-called Red Army Faction in late 1989, Deutsche Bank never again had a chief executive with such charisma, gravitas or authority as either Abs or Herrhausen.

Of course, Deutsche Bank continued to grow, it was profitable and it remained politically influential. But it never enjoyed the same exceptional role it used to play in the immediate post-war period and became a normal, globalised bank — and for that matter a bank troubled by its involvement in a range of lawsuits and scandals.

It was against this backdrop that earlier this year, John Cryan was chosen to lead Germany’s top bank out of its crisis.

To be fair, at that stage most German observers had never heard of him. Born in 1960, Cryan’s career had happened outside Germany, in the UK, Singapore and Switzerland. And even after he took his new position in Frankfurt, Cryan did not make any efforts to increase his public profile, even though his German is fluent.

Cryan had enough other things to do in any case. Deutsche Bank’s operating costs are too high. Its valuation is the lowest among global peers, and it had the highest cost to income ration of Europe’s top investment banks.

Those business challenges are daunting enough. An even greater challenge, however, is to restore faith in Deutsche Bank. In the mid-1990s, the bank’s slogan was ‘Vertrauen ist der Anfang von allem’(‘Trust is the beginning of everything’). For Cryan, the slogan would have to be ‘Repairing trust is the beginning of everything.’

Cryan started off by acknowledging the challenges his bank faces. Reporting a €6 billion loss in the third quarter of 2015, he announced 15,000 job cuts, the closure of 200 bank branches in Germany and Deutsche Bank’s withdrawal from 10 countries worldwide as well as a shrinking of its investment banking business. It was a cultural change that Cryan administered to Deutsche Bank.

As if to underline how radical this change is going to be, he now outlined his views on banking in the aforementioned speech at Frankfurt’s university. Intentional or not, Cryan’s irreverent and unconventional views are reminiscent of Alfred Herrhausen, and a far cry from anything Deutsche Bank has experienced since.

It is one thing to prepare his staff for wage restraint. It is another to phrase it in the way Cryan did. “Many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a health-care scheme and playing with other people’s money,” he said.

“There doesn’t seem to be anything entrepreneurial about that except the compensation structures.” If you are a Deutsche Bank investment banker: Ouch!

Well, if you are any kind of Deutsche Bank employee, Cryan’s speech would have been unsettling. “I believe that anyone in banking is paid too much,” he said. “We pay technicians and bookkeepers more than in other industries. We generally pay too much.”

While talking about pay, the Deutsche Bank co-chief executive also expressed his general scepticism about bonus structures, including his own. “I sit on trading floors and wonder what drives people,” Cryan said. “I don’t fully empathize with anyone who says they turn up to work and work harder because they can be paid a little bit more, but that may be a personal view. I’ve never been able to understand the way additional excess riches drive people to behave differently.”

Cryan himself would not behave differently. “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.”

But it is not just pay that was excessive at Deutsche Bank, but the use of titles, too. There were just too many managing directors — and managing directors managing directors. Said Cryan: “There is some value to carrying a fancy card if you are a banker because it is true that you get a better quality meeting with a client if you sound grand.” And yet, there are other things that a more important than that: “The title is never used in the context of the day-to-day business.”

Of course, one could regard Cryan’s attacks on banking culture as a mere justification of his cost-cutting measures. In this sense, it would only be a signal to Deutsche Bank staff of things to come.

But maybe Cryan is indeed leading Deutsche Bank towards a real cultural shift, a shift which would bring it back to the position the bank played in the past.

Whether John Cryan would use the world ‘culture’ to characterise his business restructuring exercise is a different matter. In his speech at the university, he said: “I don’t like the world culture. It is a positive word”, but banking scandals were the antithesis to culture.

Real culture, positive culture is something entirely different. It is reported that Cryan is a great opera buff.