Germany’s biggest bank is putting new strategies in place to help it better compete on Wall Street, including a shift in focus and a new US chief.
Deutsche Bank’s chief of global markets equities, Thomas Patrick, is set to replace Bill Woodley as CEO of Deutsche Bank Americas. The appointment is part of an array of steps the bank is taking to restructure its Wall Street business to better compete with rivals in America, where it has lost market share. Its performance in the US is vital to the bank’s success, and Chief Executive John Cryan has said he will personally oversee US operations.
Plans also include €8 billion ($8.5 billion) in capital increases, and the stock market listing of Deutsche Bank’s asset management business. These moves are expected to restore the bank’s capital reserves, while freeing up funds for investments in its core business of investment banking. A strong Wall Street presence is imperative for any investment bank, since the US is the most lucrative market and home to the world's largest institutional investors.
Like many American and European banks, Deutsche Bank was dealt a blow in the aftermath of the global financial crisis. But while American investment banks were quick to restructure, their European counterparts still struggle to cut costs and improve their balance sheets. Last year Deutsche Bank lagged both European and US peers, who benefited from an uptick in bond trading. Goldman Sachs estimates that Deutsche Bank’s revenues rose 9% year-on-year, versus a 43% and 15% rise among its American and European peers respectively.
Overall, Deutsche Bank’s investment banking strategy entails becoming more focused, as opposed to being all things to all markets in the US. Its global markets business has seen a strong start to the year, with debt sales and trading revenues up 30% year-on-year. But as Reuters notes, “the dilemma is how to grow whilst also shrinking.” Deutsche Bank aims to cut about €20 billion in legacy assets, including long-term rates, credit and derivatives positions from its sales and trading business, as well as staff bonuses.
Deutsche Bank also faces technological hurdles. Since it does not have the US commercial bank clients of its peers on Wall Street, it must focus on institutional investors. In this market, the competition is greatest and “increased transparency and electronification will continue to drive margins down”, said Seb Walker of Tricumen, a data analytics firm.
While others are realising efficiency gains through technology, Deutsche Bank is grappling with a highly complex and inefficient IT system, resulting from its rapid expansion in investment banking. “Deutsche Bank hasn’t been bad at generating revenues. The challenge now is to do that in an environment where cost-cutting is important but American banks now have a big head start”, a source commented. “BAML (Bank of America Merrill Lynch) started its technology transformation in 2010. Deutsche in 2015. They are five years behind the technology challenge.”