Battle of the bulge

Deutsche Bank looks like tortoise to Barclays hare

Deutsche Bank's slow-and-steady approach to its investment banking turnaround could eventually trump that of more advanced peer Barclays. Both European universal banks on Thursday reported third quarter figures and detail on their structural revamps. While Barclays looks to be ahead on both fronts, the German lender's superior positioning could make it a long-term winner.

Co-Chief Executive John Cryan's tortoise-like approach to strategy, the final details of which were released on Thursday, received an initial thumbs down from Deutsche investors. There's little to cheer: no dividends for two years, barely bigger cost cuts despite a net 26,000 reduction in headcount, and the retention of an unambitious 10 per cent return on tangible equity target, albeit brought forward two years to 2018. Deutsche shares fell as much as 6.9 per cent in morning trading.

Despite a £1 billion charge related to domestic and US ring-fencing rules, Barclays' shares fell slightly less. Revenue at its investment bank for the three months to September rose nine per cent, from a year earlier. Unlike at Deutsche, which did well in the structurally challenged fixed-income business, Barclays did best in the capital-light business of advising companies on mergers and capital raisings, where all investment banks want to grow. Fees at the UK bank from this work rose 20 per cent year-on-year - more than at any Wall Street or European investment bank that has reported.

Yet overall, Deutsche's investment bank has more going for it. The German lender made 28 per cent more third quarter revenue than Barclays with only 20 per cent more in risk-weighted assets. That means that when Cryan cuts investment banking RWAs by euro 28 billion to euro 172 billion - to Barclays' level - Deutsche should still generate more revenue. It has top-three positions in trading rates, credit and currencies, and in emerging markets, according to Coalition, while Barclays has none. And the research house says Deutsche made more revenue last year in the Americas, a region that includes the world's biggest feel pool, despite Barclays' acquisition of Lehman Brothers.

Europe's big investment banks face a race peppered with obstacles. Deutsche needs to cut trading assets, avoid as much litigation as possible and navigate US structural separation requirements. But Barclays has only made more definitive progress on the first of these. As in Aesop's fable, the tortoise could eventually win out.