Following is the full transcript of CNBC’s exclusive interview with John Cryan, CEO of Deutsche Bank at the 2017 Singapore Summit. This interview broadcasted in Asia on Monday, 18 September.
All references must be sourced to a “CNBC Interview”.
Interviewed by Nancy Hungerford, Anchor/Correspondent, CNBC.
Nancy Hungerford (NH): Looking at the market reaction, no shortage of the risks out today. We are looking at fresh action coming from North Korea yet the markets seems to be taking it in its stride. You recently talked about some asset classes being vulnerable to bubbles perhaps. Does that include global equities?
John Cryan: Actually probably not. That was one of the asset classes that I wasn’t really referring to. I think that she fairly well supported by yield. Given the world is looking for yield equities as a source, now it’s subject to price movement. But I was thinking more of some of the credit markets which if you think don’t reflect the risk appropriately. But equities was not really one of the ones that.
NH: So you think overall equity valuations at this level are sound?
John Cryan: In general across the board. Yes, I think they are well-supported. Obviously there will be individual stocks which portray an oversold or undersold perspective but across the board I think equities are okay. Compared to other asset classes.
NH: And let’s talk about volatility or lack thereof. This tends to be an issue when you look at trading revenues. Do you expect the lack of volatility will weigh on trading revenues again in this quarter?
John Cryan: That’s a good question. I will ask I’ll ask the question you’ve posed. But volatility is very interesting. The price of volatility is very low. But volatility is actually higher. So when you price an option or when the market prices an option it is using what is called implied volatility, the expectation of future volatility. And that’s been very low for technical factors. But just buying and selling of futures and options. Actual volatility has been much higher. It just hasn’t been reflect in those prices. And volatility manifests itself in different ways. A number of leading stocks have fallen quite a long way. So if you were holding certain stocks that have been subject to big price movements you might think. Wait a minute. There’s a lot of volatility here. It’s just not being priced into the market. So, nevertheless with that in mind the volatility given some of the things going on in the macro world is still quite low and from the market’s perspective it’s this implied volatility that counts. So I agree. In the past few weeks we’ve seen a little increase in that. But it isn’t back to the levels it used to trade at. So yes. I think. Some of our friendly American colleagues. In the past week or so I think there was a banking conference and I’ve read some of what they’d said, now guiding again to the markets being lower, than they were this time last year and of course that is the market. I would agree with that position, the markets do seem to be lower.
NH: And when you said last quarter in fact you results beat many expectations. In fact you said, they are good but perhaps not good enough as you see it. Will it be a different story for this coming quarter?
John Cryan: I never want to give away too much and the quarter is not over. And in the third quarter of course September is the key market because August is always the summer month in the West. It’s difficult to say the quarter as a whole but the markets haven’t changed that much from the second quarter. I think we see a continuing pattern and of course the second quarter wasn’t much different from the first. So we do see relatively little volume and volatility in the markets so that weighs a little bit on revenues.
NH: There’s also the ECB equation here. You spoke recently talking about some risks of the lingering monetary policies. A day after you, ECB president Mario Draghi spoke he said in fact he doesn’t see evidence of excessive valuations in the Euro area. Is he wrong?
John Cryan: No not necessarily. Because a lot of the overboard nature of the credit markets I think it is more of a U.S. phenomenon although that obviously will spill into other markets. I don’t disagree with him in Europe. My point about Europe is do we have that stability with European Central Bank has been seeking for since 2012. Have we achieved that level of equilibrium and is it therefore now time to move rates a little bit. I was very careful to say I think it should be done very cautiously and in very small steps to start with. But I do think the market is pricing that in that sort of relatively gentle progression towards more positive, less negative interest rates.
NH: And there is the issue of raising rates but also winding down quantitative easing as well. When it comes to the rates themselves, when the cost benefit side of things, are they still helping the banks?
John Cryan: The rates are not helping the banks. I think bond purchasing does indirectly benefit the banks because for banks that had problematical loans and assets on their books, I think it has been helpful with asset prices being relatively high, that positive yields have been created by very, very low risk free rates. That have generated demand for purchases of assets that otherwise were difficult assets, without a very very low interest rate environment. And the purchasing of bonds actually. Obviously that puts money back into the market. And recycled into higher yielding assets. So I think the policy has probably succeeded in many respects, the negative rates does hurt banks. And for banks such as us we haven’t had a credit problem, in fact our credit performance at the moment looks extremely strong. Not getting carried away by it but I think we’re running at about 11 basis points of loss. Across our entire book. That’s very very low for a bank. But we I think we’ve been hurt more by the negative rates. Because we have got very very large deposit books.
NH: And when you call for this gradual normalization if you will on monetary policy, does that mean you are more closely align with Wolfgang Schaeuble on this one would you say?
John Cryan: Yes and I think we obviously exchange views. I think we are fairly aligned with that view. I think that’s more of a German view and it reflects the high quality of credit markets generally in Germany. And the fact that Germany is a wealthy society that saves and we therefore have big deposit balances.
NH: Speaking of Germany, an election coming up. Do you think Chancellor Merkel will win?
John Cryan: Well I never like commenting on politics. Germany I think almost always has a coalition. So I think it’s the composition of the coalition that counts but. Let’s see what the German people think.
NH: Tell me where you are with the restructuring a little bit but in more details. We already talked about the results where you would like to get somewhat here. But what else can you do when it comes to levers that you can’t control specifically on cost, do you envision additional job cuts?
John Cryan: Well the costs and the job cuts for us are slightly different things. When we look at our cost base. The main theme that we’ve been pursuing is simplifying the bank. You may know that we have optionality over how we did things. And we have tried to remove that, everything one way, the Deutsche Bank way and a lot of the improvements in our efficiency is still to come. From decommissioning old systems and just simplifying the way we do things. Internally. Really Impacts the way we face clients. Just by making ourselves more efficient. On the headcount count, I made a remark last week that broadly covered. Which is a general comment frankly about the economy but it’s about the banking sector. Where I do think a lot of roles will be automated. I think it would be inappropriate not to say that’s the case. It’s not specific to our bank, in fact it’s a sector wide phenomenon.
NH: And I believe the comments you are referring to are when you said that you do have some of the employees now who are acting as robots. How do you think employees felt about that comment?
John Cryan: I think they know what and the opportunity that we always talk about internally is upskilling the job. Making jobs more satisfying. People who are just mechanically moving paper numbers around don’t have a very fulfilling job and the career prospects there are not as attractive as they would be if you were able to automate a lot of that production. I mean we can add a bit of thinking a bit of creativity to work.
NH: How many jobs ultimately though, do you think are at stake?
John Cryan: It’s very hard to say. And that’s not avoiding the question. It genuinely is. Though we have. We need to increase the number of people. Who face clients and counterparts. And external stakeholders and reduce the number who are focused internally. Producing numbers, calculating outputs and so it is difficult to say where the market moves but it will for the whole sector it will be a lot of people over the next five to 10 years.
NH: And when we talk about the prospects of job cuts, we naturally think of morale. Do you think morale within the bank has turned a corner?
John Cryan: I think it’s turning a corner. We’ve obviously we’ve been through a difficult patch it’s now feeling quite historic. So I think the banks are in good shape. People know that internally. We are encouraging people to go out. We’re encouraging people to take on more risk. Baby steps but we are taking on more risk. We want to grow the bank. And I think people feel that is a positive step. But as I said earlier not so many of our people are actually engaging externally. There are too many internally focused roles in production mode as opposed to value adding roles.
NH: As part of that return to risk, will you be resuming the bonus structure that you once had?
John Cryan: Not when we once had because we need to comply with the emerging rules. But we will be returning to a more normalized compensation structure, yes.
NH: When we talk about normalizing post-crisis if you will. There has been a push under the Trump administration to pare back some banking regulations. Is that the right approach?
John Cryan: Well it’s always good to review changes in regulations to make sure that they’re still effective. So I wouldn’t disagree with that. I think on the prudential side having banks have more capital, have more liquidity and control of both of those better is obviously a good thing. Where there be manifest error in the creation of this huge body of new regulation there’s nothing wrong with recalibrating it. I personally don’t think you should walk back regulation too much. But you could always recalibrate things, the world changes, markets change and we need to continually make sure that regulation is fit for purpose.
NH: Do you hope that the U.S. push will then encourage European regulators to do a similar step? Otherwise are we talking about a real disconnect here between U.S. and European regulations?
John Cryan: I don’t see the disconnect as being too serious. There are lots of other aspects of our business that are not connected. The tax regime is a different across countries even in the Eurozone. So we’re used to dealing with different bodies of rules, different jurisdictions. We need to set our standards higher than the minimum. For all the jurisdictions in which we operate. Most important for us is that we get clarity. And some degree of stability and regulation. And then we can plan better. Because we know the rule book against which we are planning.
NH: Do you have enough clarity today?
John Cryan: I think not yet. No. Not, not precisely enough. It’s a sweeping statement. We’ve got some but it’s… to fine tune our capital and liquidity plans for example for the next three to four years. We could do with a little bit more clarity on what the rules will be.
NH: Speaking of rules, that is just one element that you were looking for when it comes to the partial IPO of your asset management unit can you give us anymore clarity on when that date will be and do you think the market conditions themselves are right as they stand?
John Cryan: We’re targeting the first quarter next year. It’s still subject to some regulatory approvals. We’re hoping that they’re routine but of course you never deprive regulators of their jurisdictions so we do require external approvals. I think we’ve got it very well readied internally if we’re talking about the first quarter next year, sometime in the fourth quarter we’ll start to share our more concrete plans. That broadly is the target but subject to approvals.
NH: Deutsche Bank has been getting some attention around the investigations in the U.S. looking into the election and whether or not Russia had any involvement. Also looking into loans that Deutsche Bank has made to Trump and some of the members of his family. Has Deutsche Bank received a subpoena on that matter?
John Cryan: I think we have agreed we wouldn’t comment on that matter. Other than to say if we do receive a request potentially in the form of a subpoena but there are other forms of formal request. By which we’re bound. Then of course we will cooperate fully with any official investigation. But we cannot just share with the public information about any client whoever that client is. That, it’s illegal. But it’s also incredibly bad practice. So we will always follow the rules we will always follow the law but we can’t just compromise our client’s confidential data.
NH: Has Robert Mueller or any one on his team been in touch with you or any one at Deutsche Bank?
John Cryan: We think we said we wouldn’t comment any further on that investigation.
NH: Can I get your thoughts on Brexit? Because you have also made some headlines about preparing for the worst case scenario. What does that translate to in actual numbers of jobs that will be moving. There has been estimates floating around half… in London. Does that sounds about right to you?
John Cryan: No. I don’t think so. And. Those estimates are difficult to gauge because the scenarios can be very different. We’ve been working with our regulators but also with both sides of the debate. To try to come up with a contingency plan for things going wrong. And we think that’s a good approach. We hope that for example we are given a longer transition period. We’re hoping that the terms of the Brexit are more friendly so there’s less change involved. But if things were to be. Without the transition period quite an abrupt Brexit. No real ongoing passporting or licensing no equivalence between European Union and the UK. And we do need a contingency plan. And on that basis we could have quite an abrupt impact on our bank
NH: When you look at the negotiations that has been happening so far between the UK and those leaders of Brussels are you worried that we are headed towards that worst case scenario?
John Cryan: I think it’s difficult to say. I’ve been in the business world all my life and I’ve noticed that negotiations tend to come to a head towards the end. It will be helpful if some things can be agreed sooner. The sooner the better for everyone. For the whole sector. The more clarity we have earlier the better. That goes without saying. But I think just on a contingency planning basis. We, it’s right to think the worst. We have as you may know we’ve already made some decisions as to things we can do anyway in the context of Brexit. UK we assume will leave the European Union. And therefore from European Union business. We think it’s appropriate to book that business. Upon client demand in the European Union which would mean not in London. And so we… But for Deutsche Bank we’re in a happier position because our capital and our bank already German. So we can designate the London branch to something but only as a booking center. In London we book all sorts of business we book business from Asia we book business from the US even. We would generally just then book that into Germany.
NH: And you spoke the other day about Frankfurt being a potential beneficiary of Brexit, Singapore making…as well. Do you think any other European states are going to get the flow because we spoke to BNP Paribas’s Chairman earlier and he thinks Paris stands a good chance as well.
John Cryan: He may be biased.
NH: But are you biased?
John Cryan: But I think we would obviously be a little bit biased because we’re already in Germany. My headquarters in Frankfurt. From what I can see I think Dublin seems to be something of a beneficiary. And I guess Paris is a contender for Deutsche Bank. I think the clue is in the name. And I do think that Frankfurt will benefit the most. I think it will be the clear winner of the other European centers. But for us we’ve been careful to say Germany as much as we say Frankfurt because of course we are present throughout the country. And we’ve excellent centers in Bonn for example where the post-bank is but also in Berlin where we’ve a big risk operation with 5000 people at Berlin and Berlin’s capacity to absorb more people is probably greater today than Frankfurt to be fair. So we are careful to say Germany because we got the whole country to play with it’s not just one city.
NH: And Brexit is just one factor that has really changed the world since just a year ago when the Singapore Summit was being held, of course, at that time we were just gearing up for the U.S. election but even then there was a lot of populist rhetoric on the campaign trail. As the discussions take place here this year, do you think there is still a concern about a backlash against globalization, perhaps new trade, concerns between U.S. and China. Is that still there?
John Cryan: In our business we come across it a bit. I think the underlying theme that… That is still of concern that hasn’t really been resolved is the one of inequality which I think is expressed in a lot of these populism movement. And I’m not sure that that’s necessarily been solved in any way. In the past…
NH: Do you think inequality has been made worse by the central bank policies?
John Cryan: I do and I’ve said so before. Mainly because if you have assets before and they’ve gone up in value. You didn’t have assets, they didn’t go up in value. So you’ve benefitted from low interest rates. Obviously if you are a deposit account holder then your yields went down. But for those holding financial assets. There’s been a lot of inflation. And there hasn’t been any wage inflation and there hasn’t really been much price inflation. There’s really been asset price inflation. So if you had assets. They’ve probably gone up in value.
NH: We’ve talked about a lot of factors here, a lot of risks is there a single uncertainty a single risk that currently stands in your way as you are trying to put your objectives at Deutsche Bank?
John Cryan: For us no. I actually think that it’s up to us now. I say internally sometimes we need to get out our own way and make ourselves more efficient. We need to we need to keep an eye our revenues and our client business. And clearly that will be a focus of investment. But if we can make ourselves more efficient. It will flow through to the bottom line. In the outside world. There’s still some idiosyncratic risks you mentioned earlier some of the recent events. It could be a geopolitical nature that could be big disruption in the markets. But aside from those, actually Asia is doing very well. The U.S. is doing OK. And Europe has really picked up in the course of 2017. So, we’ve got a bit of a tailwind from the macroeconomic environment.