Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.

Expert Views

11,661.8575.5
Stock Analysis, IPO, Mutual Funds, Bonds & More

Deutsche is no Lehman, has a very robust balance sheet, says CFO

, ET Bureau|
Updated: Aug 09, 2019, 08.37 AM IST
0Comments
James Von Moltke

Highlights

  • Our commitment to India is very high.
  • We’ve re-oriented the bank to the places where it’s sustainably competitive.
  • A negative interest rate environment is very difficult for us.
Deutsche Bank just announced plans to eliminate 18,000 jobs. And speculation is rife about its financial health. In an interview with ET’s MC Govardhana Rangan, chief financial officer James Von Moltke explains the rationale behind the restructuring and what the future holds. Edited excerpts:

What does one make of rumours in the social media about Deutsche Bank being Lehman 2.0, that too when you are restructuring?
It’s always amazing to me what people choose to write and speculate about. The information that we disclose publicly shows a very robust, stable, well capitalised, highly liquid balance sheet. And people choose to ignore the public disclosure and traffic in rumour and speculation instead. It’s important to understand that post-crisis regulation, the thing that makes a Lehman comparison so absurd is just how much the balance sheets of systemically important banks have changed over the last 10 years — in terms of how much capital we have, how conservatively the capital ratios are measured, how liquidity is measured and managed, the degree of oversight from our regulators. Frankly, today, in what is a benign credit environment and a very tight management of market risks — the comparison is really absurd. That this kind of speculation can exist only means that the public hasn’t really internalised just how conservatively constructed our balance sheets are today. We have an extremely robust balance sheet.

Deutsche Bank has been at the receiving end in recent months. And now you have the huge job cuts?
In a good sense, we now have our strategy announced and we can move to just executing on it. There was a long period of speculation about what decisions we make throughout the first half of 2019, starting with first the rumours and then confirmed discussions of a domestic merger. We made the decision not to do that but of course we made the decision in light of what our other strategic alternatives would be. The market immediately began to speculate what strategic decisions we would make and as is natural with these things, it takes some time to be fully ready with the
measures that we announced.

Is your shuttering equities business good enough for Deutsche Bank to come back to normalcy?
That is certainly our view. We’ve re-oriented the bank to the places where it’s sustainably competitive and we have also, in terms of taking resources out of businesses where we were struggling, given ourselves the opportunity to invest sustainably over time in the businesses that we keep. So, its equities sales and trading that we’ve decided to exit completely. We are going to retain a corporate equity capability for primary underwriting.

When you have such a huge lay-off — almost 18,000 people — there would be a lot of disturbance in the institutional set-up …
It is obviously a disruption for the company and painful for us all to separate from a large number of employees. But I think it is important to know that this restructuring is intended to take place over several years. So the target that we have set for ourselves is for the end of 2022 to be at 74,000 employees — down from where we are today which is at about 91,000 employees. The people in businesses that are being retained, by and large, their reaction has been: “right decision, painful, but it puts us on a stable footing and we’re glad that you made the decision”.

How much of this restructuring would make Deutsche less global? There are doubts whether you would remain in Asia and even Indian business?
We are a global bank and in the boardroom discussions, there has never ever been any doubt about that. And Christian Sewing, our CEO, often talks about that being our DNA. Our company was founded precisely to support German industry abroad through trade financing and it has obviously developed since then. So the global network was never something that we had any doubt about. They need a local bank that can support them globally. So it is very much in our DNA.

Where does India stand in the overall scheme of things?
Our commitment to India is very high. In fact we just increased the capital last year by almost ?4,000 crore. So you see we are making considerable investment in the Indian market which is one of the biggest international markets that we have. We’ve made the decision to invest and continue to pursue the retail business and grow. Consistent with the global decision about equities sales and trading, we will exit from that business even in India but otherwise our profile and franchise in India is very similar to what we have around the world, in terms of its strengths in fixed income and currencies trading, credit, corporate banking, and of course, the retail business.

Most global banks were in trouble after the global financial crisis. But Deutsche has been struggling to get out unlike others. Why?
It’s important to note that Deutsche Bank did not take state aid after the crisis. Of the global banks, there were several that did, but Deutsche Bank was one that managed through the financial crisis with its own resources. I will say that the European banks in general were slower to adapt to the post-crisis environment than the US banks and there are a number of reasons for that. One was that the European banks got into the Euro crisis quite soon after so they had a second fire to fight, if you like, in early 2010 that distracted them a little bit.

Now you have a new challenge… negative interest rates. What does it do to your business?
A negative interest rate environment is very difficult for us because it means that every incremental deposit we put at the European Central Bank costs us 40 bps. We have about €100 billion on deposit on average at any given time with the euro system. That means we pay €400 million per year in interest to the euro system for the pleasure of putting our clients’ deposits into the Bundesbank or the euro system. That’s a challenging environment for any bank. We are obviously working to offset that drag on revenues whether it be by balance sheet efficiencies that we can harvest, or whether it is by changing the pricing of the deposits, or whether it is by introducing fees. And of course, in growing the loan book in a prudent way.

How are your customers reacting to having to take this cost?
Well, they don’t and this is the problem for the bank. Individual customers are floored at zero. So, we don’t pay them interest but we don’t charge penalty interest either. We absorb the cost of that penalty interest that is paid by us to the euro system. We do pass on negative interest rates to corporate customers and some commercial customers. However, for the individual, they are frustrated because they don’t earn interest but they are not being exposed to the full impact of the negative rate environment because we are absorbing it on their behalf.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service