Following are excerpts from the transcript of a CNBC interview by Geoff Cutmore with Marcus Schenck, CFO of Deutsche Bank.
GC: This announcement comes as we see very turbulent market conditions. My question to you is -- if we get a further deterioration in overall credit quality in the markets and more volatility, is there a plan B that management has been working on?
MS: Well you mention two things – credit deterioration that would certainly negatively weigh on the industry as such and I think we've made it clear this morning that we would expect for 2016 a slight increase in loan loss provisions because 2015 is almost a historical low. Increase in volatility is not necessarily always negative for banks because, as you know, in our investment banking division we would very often benefit from an increase in volatility. And in fact we've seen some of that benefit already in the first two/three weeks of this year. So I wouldn't be so negative about that. In that sense I don't think we have to think about a plan B at this stage. Where I think we as Deutsche Bank need to be careful is – this year, 16 is very much impacted by a lot of restructuring activities and we need to do all those always bearing in mind where our capital ratio stands and be sufficiently flexible on how we time actions.
GC: Can you imagine any scenario where you may have to go to the market and raise equity capital? Has that been discussed by the board?
MS: You, of course, discuss downside scenarios, and you discuss extreme downside scenarios. We are not doing our job if we would not also be looking at those items, and I think we've made it very clear today that, in our plan, with assumptions that I think are conservative on the litigation side, we bake in a lot of restructuring expenses; we bake in, in 2016, one-and-a-half-plus billion of additional cost in relation to accelerating the wind down of our non-core unit which we don't necessarily have to do this year. So all of this, I think, gives us some flexibility which is why we think it is really not needed to raise capital. And plus, we have not yet even spoken then about where we could flex on the RWA side. So really, raising equity would really only be in a scenario where the markets more or less collapse, or we get totally outsized litigation charges, both of which we're not expecting.
GC: You can talk directly to Deutsche Bank employees here - morale must be terrible in the organisation. We hear it; I'm sure you hear it. How do you persuade someone who works for Deutsche Bank today, after they go through the cut in the bonus pool, that they stay with Deutsche Bank in 2016 rather than go to work for Citi, or JPMorgan or one of the other banks in America that is now taking market share from you?
MS: As you know you are talking to someone that just recently joined DB and I had very carefully thought about if this is something I should be doing, and I knew that this is not going to be a walk in the park, but rather a multi-year journey where we need to turn around things. So I think I've met so many people in the bank that are motivated to make this work, we have so many people in the bank that have actually been with the bank for decades, really for quite a long time, and there is a lot of vested interest to still make it work . Yes there are some people that might give up and say 'look this in no longer the place for me' but I think the vast majority has the fighting spirit and also sees in a way the big reward that is out there at the end. Don't forget, we are coming from a humongous loss position, if we turn this around over the next 2 years, and we said that 18 is going to be the first quote-unquote "clean year", if we really make that work and achieve our targets then I think this is a very attractive place to be in. And last point, don't forget we still have a formidable client franchise which we need to leverage and I have seen that at work, despite the fact that I am the CFO, because I am still spending enough time with clients.
GC: Can I ask you, just to follow up from that, obviously a lot of the provisioning is about litigation risk here, but people are getting fed up with it quite frankly. Even within the banking organisations themselves. Do you think it's time, maybe, to push back against the regulators now and say, look, enough is enough, you've taken your pound of flesh, you've punished us for the past – let's just wind down the litigation, it's not fair any longer, and you're damaging the position of the bank itself which means we can lend less into the real economy if it carries on like this.
MS: I don't think any bank would be in a position to fight that fight. Our clear ambition here is to get things behind us, to be constructive with the authorities which is often not regulators, but in many situations, Department of Justice and the like, so really the issue here is: get things behind us, make sure that nothing new comes up. That's at least speaking for Deutsche Bank – and I can only speak for Deutsche Bank – that's our clear objective. Are people sort of, at some stage, running in to fatigue around this issue, yes, but we know that 16 is a year where we still have to work through issues, we will not be finished but we think, once we're through with 16 we'll have seen the vast majority.
GC: You talked about challenging market conditions in the press conference and in the release, and that covers a multitude of sins. But the three things that are really worrying markets at the moment – Deutsche Bank is somehow in the middle of all of them. That's QE and its impact on profit margins, it's oil and the exposure of the banking sector to oil-related debt and derivatives. And three is the broader issue of China and whether China is going in the right direction. You've invested heavily in China. Can you just cover those three off for me and tell me what the bank's view is on how they will perform for you; what impact they will have for you this year?
MS: If we had high interest rates would that be beneficial for us? Of course. But we're not expecting that interest rate environment to turn so quickly. Which is why - and I think the best example here is our retail business - we have clearly moved from deposit-interest-earning products more into credit and into investment. And having seen some of other banks in the past several days I actually think our retail business has proved that Deutsche Bank has been doing quite well actually in managing through this period of low interest rates.
On oil, we have a much smaller exposure to that sector than probably all the other major banks. Which had some downside - we lost a bit of market share in particular in our leverage finance business. But the positive flipside of that is our exposure, we think, on a relative basis is maybe half of what other banks have. So we're not concerned about that sector. The exposure we have is largely with the big NOCs and the big internationals. We have almost at a minimum exposure to the smaller players.
Last point on China -- I wouldn't be so negative on China. I obviously cannot predict, but it's still an economy that is growing at 6+% - when you compare that to all other major countries that we're looking at I think we'd all be hoping to have even half that growth. To us, China remains to be a core market. So we, as a house, are not bearish on China. We think they are going to find their way out and maybe the market right now is being almost too harsh in its reaction.
GC: You were all up on stage there and taking some really tough questions today. Is John Cryan up to it? Are you up to it? What's the human cost at the moment as far as the team is concerned, because, obviously, you are the leading bank in Germany, in Europe. This is relentless bad news at the moment, are you guys bearing up ok?
MS: I think we are, don't forget neither John nor I signed up not knowing what is coming, we did this going into this with eyes wide open, that was expected. Are there situations where you find something that you hadn't expected? Of course. But overall I think what motivates and drives all of us on the board and I would say that speaks for the vast majority of our people is just the outlook that if we turn it around over the next 2, 3, maybe 4 years, it will really be an achievement that is humongously relevant and will be quite rewarding.
GC: But no more cockroaches in there anymore, no more surprises?
MS: Life is full of surprises, so I wouldn't rule out that we would see any surprises to the negative and to the positive on the other hand.