Following are excerpts from a CNBC interview with John Cryan, CEO of Deutsche Bank and Geoff Cutmore.
GC: John, let's just start off by asking you about the rational. Why do you need to raise the money now?
JC: Well I think there are a number of factors that went into the decision as to why to raise money now. First and foremost I think we were listening to some feedback from...from the market, where there were still concerns, which were to some extent shared by our clients and our counterparts. That we still didn't have enough capital. We ended last year with a big buffer. Over our minimum. But our cost of debt hasn't reflected strong capitalization yet.. yet! And our cost of equity seems still quite high. So for those reasons we thought we we probably should look at the opportunity to raise. And then we've been, as you know, we've been thinking about what to do with the Postbank. And we got ourselves into a position where, if we wanted to keep it we needed effectively to refinance the retention of it. And therefore I think the two came together and it seemed like the right time to go to the market.
GC: And the discount is a sizable discount to Friday's close. This puts you in sort of Unicredit ballpark capital raising and I don't think anybody in the past would have put Deutsche and Unicredit necessarily into the same sentence. But why, why such a significant discount. Is that what it takes to get it across the line?
JC: Well, I would actually disagree on the discount. It's actually not that wide in a range of discounts. The general the market approaches to look at the discount to what's called the theoretical extradites price and it's set it around 30 percent. And the range can go as high as 35. But having said that it is really it's quite a heavy rights issue. So it's one new share for every two held. And I think that pricing looks about right. Rights issues themselves are not dilutive from a value perspective if the nil paid rights trades efficiently. And so, we should be less concerned about the level of the discount. And more about the adequacy of the proceeds that we are raising.
GC: Obviously there's a question of credibility here in the market. Back in January you were saying to me 'Never say never' about rights. But I don't think anybody expected in such a short time period you would go go back to the market and this is what the third capital raising since 2013. I know they've not all been under you but 20 billion since the financial crisis. I mean how do you address the credibility question and the one about your future?
JC: Well, I think in the prior issues you're right. We they were, they were effectively used by the business and we've had a lot of legacy costs. And we're hoping that the vast majority of those are now behind us. And the the effect of this capital raising is to raise our capital ratios. There's no immediate deployment beyond retaining and integrating Postbank. And then there's a we're resuming dividends. Other than that it goes to improving the capital strength of the bank.
GC: Handelsbalatt were saying you were tired I think they were saying was a rumour running around Frankfurt that John may be getting a little weary of running the Deutsche Bank. Is that accurate at all?
JC: Well I'm allowed to be tired every now and again but I am not weary of Deutsche Bank as I said yesterday. I'm 150 percent in. And I'm around to see this type process through.
GC: What about the reversal when it comes to the investment banking business and the capital markets business that does look odd because you had a strategy laid out in 2015 that was very clear it seemed and you have now gone back on that previous strategy. What does that tell us about whether it was right or wrong in 2015?
JC: Well all we've done is slightly reorganized the way that the company's managed internally. We still have the constituent parts of that now. The broader corporate investment bank. And it just struck me that when you have two divisions representing your investment bank you build up two internal infrastructures. And that's wasteful. So we're putting them back together again it leads to some cost cutting. We actually think it's significant. We announced 700 million per-annum efficiency savings from just putting it all together and having one investment bank under one roof and common leadership is not unusual in the industry.
GC: But why is it different from the strategy that you outlined in 2015?
JC: It's not. I don't think that's a strategic change at all. We have slightly reemphasizing our coverage of corporate clients but we define corporate very broadly I mean includes governments for example and we just want to emphasize that. We're much more client focused than we were in the past to the banks not just creating products on its own balance sheet and then trying to sell them. We're responding to client requirements. And effectively we have a broad client coverage team, clients defined that very broad way. And then two very big product factories. One on the banking side would comprise our transaction banking business and our big financing business. And that's using the banks resources. And then on the other side we have the global markets business where they're inter-mediating between....
GC: When we spoke back in January you also said the asset management business is a key part of Deutsche Bank going forward. Today you're announcing that there's going to be a minority IPO of some of this business. Why are you doing that?
JC: Several reasons. I think first and foremost we don't believe that that division gets recognition when the bank is considered by the market. And there are plenty of research notes that hardly even referred to it. It's always an afterthought when the market looks at the bank. And it's been a very strong and consistently well performing business. So I think recognition is important. Second of all I think that there are two aspects to having a listed share which benefit that business. First, at some stage in the future, not for now, it provides that business with an acquisition currency. And I think Nicolas Moreau who leads the business would at some stage be interested in pursuing bolt on acquisitions for the business in order to build it out. Very broadly diversified today. But he wants to continue to reallocate capital within it. Next is, I think we can, although it will remain under the umbrella of the bank it's going to remain a very much a controlled subsidiary, so they're subject to banking rules in relation to compensation, I think we can produce compensation plans which are more attractive for people joining the company. But also retaining the talent within the company. Because we can give them direct drive against the performance of asset management and not just the broader group as a whole.
GC: Have you begun looking at targets for potential new positions?
JC: Not at this stage no. No. It's too early days. The group hasn't been on an acquisition spree for some time. No but Nicola wants that option within the business in the coming years.
GC: Can I ask you then are we done here. You're going to raise a billion.
JC: It's underwritten remember so.
GC: Absolutely. But does that mean that there will be no further capital raising as far as you can envisage at this stage?
JC: Well we should add that there are other measures that we're taking including the sale of a stake in the management business but we expect to raise at least two billion from a number of disposals - they're very small constituent parts of our group and will carry them out over the next 12 to 24 months and that should add another 2 billion at least I would have thought. With those measures taken into the round I think we think so far as what we know today that is enough.
GC: Is that a 'Never Say Never' line or is that, 'no we're done here while I'm running this business'?
JC: I would never want to run any business without an insurance policy. But we've have targeted this common equity tier 1 ratio which I think is the core one that people use to measure are our capital strength. And we said we want to be comfortably over 13 percent. And this capital raising measure takes us immediately proforma over 14 and then there's the additional 2 billion or so of capital released from the other measures. And, we obviously want to run a profitable and successful business that's accrediting its own capital. So we feel comfortable that we've done the right thing.
GC: How do you think the business environment has changed for the bank in terms of what the opportunity is going forward and why will this new structure suit that opportunity better?
JC: Well that's the big point that I actually wanted to make yesterday in relation to the measures we've taken. We're re-pivoting the bank to some extent towards growth. It's not, 'all the controls are off on our dashing for the for growth again' it's just controlled growth in a market environment that, to us, looks very favourable. The U.S. market is, you'll see from asset price,s it's almost booming. There's a lot of confidence there, a lot of confidence the government will deliver an environment that's positive for investment. And that's spilling over even into the Eurozone in recent purchasing managers indices and so forth are showing a real improvement in confidence in the business community in the European Union so I think in our main markets we're seeing some impetus towards growth and we want to share in that. So if we've told the company now the perimeter shrinkage is over, we still have some work in our controls but let's start to build the business again and start to grow and make a successful company with the capital resources to do that.
GC: And the mood music in the States appears to be that we might get some rolling back of the regulations post, the financial crisis. Do you think Deutsche Bank is interested in getting back into the Prop Desk business?
JC: No I don't think we would even if we could. I'm not sure it's ever been a good use for banks balance sheet is not a very efficient use of banks balance sheet. No but we would serve institutions that are obviously in investing. But no I don't think we would turn the bank back into an investment arm.
GC: Is it a good idea that some of the regulations get pushed back at this stage?
JC: Actually I think what we would like as a bank is some stability in the environment for rules so that we can plan with a little bit more confidence than not knowing when the rules are changing. So one of the things we announced yesterday is we have more confidence in raising money today because it seems that the changes from the Basel Committee actually now been pushed forward to such point that they're beyond our planning horizon. And so we're planning for the current rules set with the changes we know will be introduced. And although we're mindful of the fact that in maybe five to 10 years time there may be some new rules we have a little bit of stability for the time being. And it's that stability and knowledge of the rules that's helpful to us.
GC: And just on the management restructuring: What is that planning for the fact that Markus and Christian now get elevated to these Co-CEO roles?
JC: That was a request I actually made of our supervisory board to confirm these titles on Markus and Christian. And the point was really to share the tasks that I face as the CEO and as you know with a very large global bank operating in a big way in Germany obviously but also in the U.S. and in the London market and with plenty of presence in continental Europe. And Asia. So I get pulled in lots of directions and it's just helpful sometimes to have one or two others at the management board who can formally represent me, particularly in Germany because this is more of a German title as that publicly declared deputy. And Marcus and Christian can play tag on that. And just help out in the formal representation rules that we play. But I am. It doesn't mean that I'm turning down my appearances in Germany or my interest in Berlin at all. It's really adding two of my more senior German colleagues to assist me in that in that role.
GC: And just to wrap up there is a 2020 time frame for this restructuring process to be completed. Does the fact that we're now hearing about further capital raising further restructuring on top of the 2015 announcement suggests that there is some slippage now in that program.
JC: No it doesn't although on the Postbank integration which is actually the only new step the changes in the investment bank side are actually in train. On the costs, we actually found that the processes we have in place to make them to make the bank more efficient actually delivering lower costs than we'd originally planned. That's why we re-calibrated our cost targets and were making more disposals than we had sight of back in October 2015. We said that 22 billion target. Experts are saying we feel pretty confident now we can revert to a 22 billion target. With the Postbank. Which has a space of between two and a half three billion euros. So I think the visibility today is that we can actually take the costs further down. But the point of the rights issue was to put some impetus behind revenues to grow the profit so profit generations will come to some extent for further cost reductions. But it's really a revenue measure. But there will be. A difficult integration process in Germany but it's only in Germany that additional restructuring were applied.
GC: And the fact that you're hanging on to Postbank now if a buyer turned up tomorrow and said I'd take it would you still spin it out of the business or is it now a done deal it stays within the company?
JC: We're committed now to this integration process. I think what we what we should have placed more emphasis on was the huge potential that having 20 million customers, existing customers - 10 million of whom were using our digital systems - Germany is really starting to embrace e-commerce and the digital world - having those already in the house that's a third of the addressable market in retail banking in Germany and that's a tremendous asset that doesn't sit on the balance sheet. So we're very committed to combining the businesses but maintaining both brands and growing the bank from the base of an efficient, unified Bank in Germany.
GC: And just to be clear for my own mind here I didn't see any specific job related announcement in the release on the website. Are there any further jobs to go at this point beyond what's already been announced?
JC: There would be inevitably in the combination of Postbank and then our blueBank in Germany but will we'll do it in a manner that is sort of commensurate with the work that we've done so far. We have to retain flexibility but we will do it in a in a way that's traditional in Germany. There will be a lot of long discussion period, lots of compromise and we'll work together with the various stakeholders to achieve the right aim for the company.
GC: Have you put numbers on that yet?
JC: We haven't yet. No, we want to spend a lot of this year, remember that the Blue Bank, as we call it, the Deutsche Bank in Germany still in the process of the branch reductions and the headcount reductions and that runs its course for the next quarter or two. When that's over we should have a plan in place to meticulously plan that the integration of Postbank and the Blue Bank. But we didn't want to disrupt the process that was in place at the blue bank while it's still underway.