Deutsche Bank has given up its dream of becoming a global player. In an attempt to finally become successful again, the company is refocusing on its home market. That could work, but might not, thinks Henrik Böhme.
At Deutsche Bank, they love Sundays. When they sent their unsuccessful CEO Anshu Jain packing in the summer of 2015, they did so on a Sunday. And now, once again: A massive restructuring including capital increases in the billions - announced on a Sunday. The seven-page press release, sent out at 4:42 p.m. local time was a doozie. The goal of the operation: Deutsche Bank is supposed to become more German again.
The facts attest to this: After a long struggle, Postbank with its many millions of retail banking customers is now supposed to remain a subsidiary of Deutsche Bank after all. Not because the Frankfurt-based bank has suddenly grown fond of its Bonn-based subsidiary. Hardly. Deutsche Bank simply couldn't find a buyer - not even in China – who wanted to deal with a branch bank in times of low interest and in the midst of a digital transition that has reached the banking sector as well. At least nobody wanted to at the price that Deutsche Bank was asking.
Furthermore, the new focus on the domestic market was substantiated by two personnel decisions: CEO John Cryan gets two German deputies, Marcus Schenck and Christian Sewing – one might say: two crown princes who now get to compete for the seat at the top. Because this much became clear this Sunday: Cryan is unlikely to extend his contract, which ends in 2020. Until now, Schenck was CFO, Sewing was head of the bank's German operations. One of the two will inherit the realm.
Unpopular capital increase
But naturally, the new strategy also needs to be substantiated financially because recently the bank has been particularly notable for generating losses – gigantic ones. The pressure on the CEO to finally present a new strategy had grown more and more, especially from Qatar, one of the main shareholders. The Sheiks now own a bit more than 10 percent of the stock of Germany's largest financial institution.
They really won't like what else the bank had to announce: three years after the most recent capital increase, the bank once again needs to ask its investors for money. The bank hopes to take in eight billion euros ($8.49 billion) by issuing new stocks. That was something they had wanted to avoid at all cost and every question addressing this issue at press conferences during recent months was deflected. No, no need to do that, we are well-positioned, we have 200 billion in cash in our vault. Even the so-called equity ratio - the most important indicator of financial stability in case of a crisis - had indeed improved. Capital increases, i.e. the public offering of new shares is never something that investors like to see because it reduces the value of their shares. To ensure that investors will stomach that reasonably well, the bank announced that it would pay at least a small dividend, something it hadn't done in the recent past, due to the billions in losses.
Furthermore, the bank plans to split off the successful asset management business and to take it public. That should bring in a couple of billion as well.
Smaller fish to fry
To summarize: Deutsche Bank is rediscovering its old strengths. It wants to be the "clear market leader" in Germany in corporate and retail banking, it wants to be involved when companies plan big and small investments or if they want to merge or acquire other businesses. Because let's be honest: How can it be that the German chemical giant Bayer is setting up a 66 billion dollar deal and Deutsche Bank is not involved in financing it? That is supposed to change again.
Deutsche Bank will be frying smaller fish from now on. However, there is no guarantee that this new shift in strategy will bring success. The times are changing radically right now – in the banking industry as well. Only if folks in Frankfurt manage this balancing act between restructuring and digitization will Deutsche Bank's 150th birthday celebration in March 2020 be a reasonably relaxed affair.