Deutsche Bank’s chief executive John Cryan has underlined the positive outlook of the Greek economy, warning however that “the road to normalization will remain long and difficult.”
In an interview with Kathimerini, Cryan says that while the country is back on investors’ radar screen, commitment to reforms and prudent fiscal policy are key to exiting the lingering crisis.
“The Greek population’s desire to stay in the eurozone has remained surprisingly resilient over nearly a decade of crisis, which is a good sign,” he says.
The Deutsche Bank CEO does not rule out further mergers between European banks and takes note of progress on nonperforming loans.
“Greece has some remaining work to do,” he says.
How are Deutsche Bank and the wider banking industry doing?
Banks have recovered reasonably well, the overall development is clearly positive. Due to the tremendous efforts of both banks and the regulators, the whole industry now is very solid from the perspective of financial strength. Instead, the challenge for banks at the moment is the low interest rate environment. Additionally, market activity is very low. In this environment it is hard for the industry to grow revenues.
For Deutsche Bank specifically, we have seen good progress on our strategic agenda. We raised capital, cleaned up our balance sheet and improved our controls. The biggest challenge really remains profitability: We still need to improve our efficiency, and we have to focus more on growing the business again. Still a lot to do, given that at the same time digitization is driving change in the industry faster than we thought. But with the merger of our Private & Commercial Bank (PCB) in Germany and Postbank, the repositioning of the Corporate & Investment Bank and the partial initial public offering (IPO) of our Asset Management business we are well positioned for growth. In addition, I am convinced that digitization is a huge opportunity for us. That’s why we have to be at the forefront of technological development in finance and beyond.
There was the perception that the bank was falling behind in investment banking. Do you feel that the worst is behind you?
Without a doubt. While the revenue environment was challenging for all investment banks, we improved our competitive position in key products and regions. According to a recent Coalition report, we have succeeded in advancing one position in the global fixed income business and have regained our top-two position in European investment banking in the first half of 2017 – that is the most recent ranking available. In other words, we are recovering step by step from the events of autumn 2016. Remember that we are the only truly global investment bank not headquartered in the US. That is a huge competitive advantage. We have local expertise in key European markets which most other banks can’t offer in the same manner.
There are a lot of challenges ahead for the EU banking sector. Are you worried about nonperforming loans?
I think there has been progress, for example in Italy. There, a market solution for NPLs was implemented so that Italy finished the year in a significantly different position from which it started. By the way, we have been part of that market solution, which we are very proud of. Spain and Portugal have also made significant progress. Greece has some remaining work to do in my view. But I’m quite confident the involved parties are heading in the right direction.
There is a lot of speculation about whether the Greek banking system will need another recapitalization round. What is your opinion on this? Do you think it will be easy?
A normalization of the banking system would involve a gradual wind-down of the nonperforming loan portfolios. After such a successful cleaning of the balance sheet the market would be ready to deploy fresh capital in my view. This should be accompanied by an easing of capital controls to allow the economy’s credit multiplier to partially normalize.
Is there a need for more consolidation?
We still have a large number of banks in Europe so consolidation might be a good idea in principle. Europe needs institutions that can compete on a global stage and invest in technology as US and Chinese banks can. But there are downsides of large-scale banking mergers: It takes the management’s eye off the ball during an integration period. You have to ask yourself: Is it not better to look forward and to grow your business organically?
Is Greece still off limits because of the risk factor?
No, Greece is not off limits. Finally there is light at the end of the tunnel. The outlook for 2018 remains positive. Nevertheless, the road to normalization will remain long and difficult. The Greek population’s desire to stay in the eurozone has remained surprisingly resilient over nearly a decade of crisis, which is a good sign. In my view it is a continued commitment to the euro and a cooperative attitude towards its European partners that will determine whether Greece can succeed in the long term.
Any appetite for investing in Greece at this point?
That is a bit too early to answer. First Greece has to prove it can make a successful exit from the crisis. That will depend on continued commitment to fiscal prudence and structural reform in cooperation with Europe and a normalization of the banking system involving a gradual wind-down of NPLs and easing of capital controls.
Are you concerned about the future of Europe and the eurozone?
Europe is at a crossroads with several challenges and opportunities. While the economy is recovering and populist forces have been pushed back in many countries, Brexit and persistent structural problems remain an issue, and it is unclear how some parameters like monetary policy will develop. And we still need to reform the capital markets to get closer to a real unified market. Having said that, I would also like to mention that the Single Supervisory Mechanism within the European Central Bank has been remarkably successful.
Do you think German policy on these issues is going to change?
That obviously depends on the new German government. Here, I am as curious as you are.
How about Brexit?
We are planning for the worst, but continuing to hope that the final outcome or negotiation will be more constructive. As a bank headquartered in Germany and with a strong presence in the UK, we are obviously well positioned to manage the consequences of the UK leaving the EU. So it’s clear that Germany and Frankfurt in particular will become an even more important location for us – while we expect London to remain a top global financial center as well. But we will ensure we operate where our clients are active, whatever the outcome of the negotiations will be.
How do you see things developing in the US?
The US still represents the biggest and deepest capital market in the world. For banks, the market is also attractive from a pricing perspective. Deutsche Bank has had a presence in the US for more than 140 years now – and we’re absolutely committed to the region. For example, we continue to strengthen our Americas Corporate Finance franchise, which is a core component of our global strategy.
Not only China, but the entire Asia-Pacific region is very attractive for us to do business with corporate clients. And I do think we are an attractive business partner for our clients. Let me give you a proof point: In Asia, our Corporate & Investment Bank is the number four among all competitors operating there. Drivers for the local business are the transaction bank and the markets businesses like currencies, rates and credit trading. Not surprisingly, German companies are the most important client group, a business that will continue to grow. Great potential still exists with clients from Europe but also the US. Being the leading European bank with global reach, we are convinced there is also a lot we can offer to Asian clients expanding to Europe.
What are the most important lessons you have learned?
It is imperative for us to show that we draw the right conclusions from our past mistakes. We want to be a bank that contributes to both economic growth and to the community.
What have we done to move the bank in that direction? We made Deutsche Bank simpler and less complex. To get there, we got rid of non-core operations and assets and exited some countries. We have reduced risk and improved our capital position, not least through our successful capital increase earlier this year.
Furthermore, we have significantly strengthened our systems and our control environment. By the end of 2017, we had hired approximately 1,000 additional staff in Compliance and Anti-Financial Crime since 2015. As a result, we are now a safer bank. And we got back into a position of looking ahead. Let me stress that we are determined to return to prudent growth. Due to our successful capital increase, we have the necessary resources to do more business.
You met with some political and business leaders in Greece. What was your advice, in terms of how the country can restore confidence in the markets?
Greece clearly has the potential to become a much more modern economy. There is no reason why a well-educated, hardworking population couldn’t embrace the digital economy much more and Greece couldn’t be a center for a much more modern industrial base. Of course culture, tourism, shipping will continue to be important, but adding on more emphatically and explicitly modern technology would be a real opportunity.