Deutsche Bank AG DB 2.48 % employees and investors on Monday positively graded the lender’s management and organizational overhaul, saying they welcomed clarity on how businesses will be judged going forward.
They also said next week will be crucial to understanding Deutsche Bank’s strategy. On Oct. 29, the bank will announce detailed financial targets, signaling which businesses—including within the investment bank and markets units—will get more or less access to the bank’s balance sheet.
The German lender’s shares rose about 3% Monday, a day after new co-chief executive officer John Cryan and Deutsche Bank directors announced they would break up two of the bank’s four core divisions—the investment bank, and asset and wealth management—dismantle nearly a dozen committees, and swap out a handful of senior executives.
“This is the first step to gain back trust from the capital markets,” said Ingo Speich, senior fund manager at Union Investment in Frankfurt, which holds around 1% of Deutsche Bank’s shares outstanding. “Mr. Cryan is serious and has the backing of the supervisory board. This is totally different to the old CEOs.”
Deutsche Bank executives have signaled that the breakup of the investment bank is designed in part to help executives focus more effectively on winning corporate clients, who tend to have long-term relationships with the bank and keeping them as a largely separate enterprise from serving the hedge funds and institutional investors who make up much of the global-markets clientele.
Investors said the bank appears to believe that separating the markets business from the underwriting and advisory side of the investment bank will reassure regulators and shareholders that Deutsche Bank is taking compliance more seriously. The markets business has been the source of a series of trading and market-manipulation investigations and settlements, some of which continue to weigh on profits.
In Frankfurt, London and New York, managers held meetings and conference calls with employees throughout the investment bank, asset-management division and other areas. Several managers said the scale of the shake-up announced on Sunday surprised many of them. One manager said that he thought Mr. Cryan would bring a much-needed “decluttering and de-layering” of the bank’s bureaucracy, for example, by reducing the number of committees required to launch new asset-management products.
Tensions remain over how much capital and risk-taking leeway businesses such as fixed-income trading, debt-underwriting, trade finance and asset management will get.
The promotion of global equities head Garth Ritchie to run the newly hived-off global markets business—which is being separated from the deal-making and underwriting side of the existing investment bank—marks a notable change. The securities-trading arm has been overseen since 2012 by Colin Fan, the investment-bank co-head who resigned effective Monday. His roots, like those of his predecessor Anshu Jain, lie predominantly in fixed income sales and trading, rather than in equities.
Deutsche Bank has been a powerhouse debt sales and trading bank, but Mr. Ritchie’s appointment shows “the shift of importance away from fixed income, we think,” UBS Group AG banking analyst Daniele Brupbacher wrote in a research note on Monday.
The bank’s stock-trading revenues have been rising. Revenues in its more-dominant fixed-income business—trading debt and currencies—were flat in 2014 but surpassed analysts’ expectations the first half of this year. But the fixed-income business requires a more-intensive capital outlay, which has challenged many banks, particularly in Europe, as they grapple to cut costs to meet tougher capital standards.
Investors are looking to next week for answers about how Deutsche Bank will balance a drive for profits with those more-stringent rules.
“We will continue to invest in our retail and business banking, asset and wealth management and investment banking businesses,” Mr. Cryan said in a July memo to employees. “No longer, however, can our securities and derivatives trading businesses be so heavily reliant on long-term balance sheet usage. We cannot afford that luxury.”
Still uncertain is the fate of the investment bank’s research division, which produces market and company analysis and investment ideas for clients. Following the Sunday’s restructuring announcement, analysts internally were discussing whether they would be placed inside the investment bank, assigned to the markets division or positioned somehow in between, according to employees.