John Cryan, superstar

Deutsche investors imbue new CEO with magic powers

Deutsche Bank's investors seem to be imbuing its new co-chief executive with messianic powers. Shares in Germany's biggest bank rose five per cent on July 1 after John Cryan pledged in a memo to employees to get tough. The reaction looks overdone. Although Cryan shares the same initials as Jesus Christ, he has yet to produce miracles of the kind Deutsche needs.

Cryan's first act was a negative surprise. Investors will not know what he plans to do until the end of October, instead of end-July as expected. The fact that this didn't dampen the mood shows how much they welcome his arrival.

One reason why is Cryan set the right tone. He wrote of the need to rebuild relations with regulators - seemingly at an all-time low - and of building a new culture of accountability. He appears to have a welcome understanding of Deutsche's grossly inefficient internal controls and IT infrastructure. And he wants to rationalise the bank's complexity and sprawl.

Yet, there is limited room to manoeuvre. Cryan has affirmed his broad commitment to Deutsche's current strategy, outlined in April. That means he needs to cut costs and assets more aggressively while staying in both retail and investment banking. Perhaps, he will work out how to shrink trading assets so that Deutsche can achieve a higher return on equity in investment banking, while freeing up capital for other businesses. But there will be a limit to how low the bank can go.

Take Credit Suisse, which has a smaller investment bank, as a benchmark. The Swiss bank is planning to cut leveraged assets to around $600 billion by the end of this year. Deutsche's new strategy envisages it getting to only a quarter more than that by the end of 2018. Though Cryan should be able to go faster, there are limits to how much more. Revenue would also be lost in the process. That would be painful, given the investment bank contributed 48 per cent of Deutsche's top line excluding Postbank in 2014.

The new co-chief has got off to a good start. Fixing Deutsche's problems will get harder from here on in for the other JC.