As it emerges from years dogged by scandal, Germany’s biggest lender Deutsche Bank AG aims to up profitability and reclaim a place on the global stage to rival giant US competitors.
However, the bank said profits will never again reach the risk-fuelled heights of the prefinancial crisis era as it grinds through a deep restructuring, adjusts to new rules and adds thousands of jobs in regulatory compliance.
Deutsche “absolutely does not want to take unconsidered risks as it did in the past” as it girds itself to reconquer what it can of the lost ground, compliance chief Sylvie Matherat said in an interview.
Its newfound strictness about financial regulation means the bank is “on track” to restore confidence among clients, she said.
Already, this autumn is far calmer for the Frankfurt-based group than last year’s.
Back then, the US Department of Justice slapped it with a US$14.2 billion dollar fine demand over its role in the subprime mortgage crisis, the trigger for the 2008-2009 financial crisis.
In the end, Deutsche negotiated a cheaper, but still painful, deal to pay US$7.2 billion in the US.
Under chief executive John Cryan, Deutsche has reduced risks in its investment banking division, closing 200 branches across Germany and slashing about 9,000 jobs worldwide.
Even once those mammoth tasks are ticked off, “returning to precrisis levels of profitability isn’t possible,” Matherat said.
Deutsche basked in pretax return on equity of up to 25 percent before the crisis — although that was on a much less solid capital foundation than nowadays.
Two years of stinging losses and a string of capital increases later — the last for 8 billion euros (US$9.4 billion) in April — post-tax return on equity stood at just 3.2 percent by the end of June, but analysts expect nothing better from the bank in the third quarter.
The lender ought to aim for the same ballpark as its biggest rivals, which “have set objectives of around 10 percent net return on equity,” Matherat said.
Shareholders have been hurt by a 7 percent fall in the stock’s value since January and are impatient to see the bank on a profitable footing — just another factor putting pressure on the board.
Before thoughts turn to driving up the bottom line, Deutsche has buttressed its risk control department, an expensive but vital bulwark that helps boost confidence among clients.
Matherat’s division is to grow to about 3,000 people by the end of next year, spread between Frankfurt, Hong Kong, Singapore, London and New York.
The figure is 500 more than originally called for in the bank’s plans.
“We will apply a simple rule: Everything we can’t check up on will be forbidden,” she said.
Deutsche hopes to have a system up and running by the end of the year to track client interactions.
“Of course, checks slow business down a little, but the important thing is for people to internalize them as if they had come up with them themselves,” Matherat said.
She said that Deutsche can be one of the world’s leading banks, but only if Europe and Germany can overcome their distrust of investment banking.
The EU is still working through the legacy of the crisis, including a planned capital markets union designed to make it easier for companies in member states to raise money in a single financial marketplace.
However, if Europe does not overcome its distrust of investment banking, the scheme “could be most beneficial to the usual American suspects while leaving big European banks, including ours, behind,” Matherat said.
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