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Germany cheers as Deutsche Bank ends Goldman pursuit
DEUTSCHE Bank AG's management upheaval may be the final blow to the embattled lender's ambitions to go head-to-head with Goldman Sachs Group Inc in international investment banking, and that's just fine for many in Germany.
With veteran Christian Sewing appointed chief executive officer as the emergency replacement for out-of-favour John Cryan, businesses serving international clients and trading an array of exotic securities look set to be scaled back. Focusing on lending to German companies at home and abroad would be welcome after three turnaround plans in less than three years.
"Germany doesn't need an investment bank in the image of Goldman Sachs," said Ingrid Arndt-Brauer, a Social Democrat lawmaker who chairs the finance committee in the German parliament. "German companies and consumers need a bank that's focused on the core business of lending that secures the German economy and partners with companies internationally."
Dialling back its ambitions in global investment banking would be an about-face for Germany's biggest lender after it sought support just three years ago to become more like Goldman Sachs. Crushing competition at home and repeated blows to its reputation in the US ensured that it never realised those goals. Mr Cryan failed to inspire staff and investors in his ability to turn around the bank, leading chairman Paul Achleitner to sound out potential replacements before settling on Mr Sewing to bring calm.
"Sewing's appointment is in my view a signal that investment banking will no longer be dominant," said Hans Michelbach, a lawmaker from Chancellor Angela Merkel's bloc. He expects Deutsche Bank to focus on retail banking and financing for the German economy, especially working with small and medium-sized companies.
The bank has struggled to recover from the financial crisis that exploded a decade ago, and recent restructuring efforts have been slow to bear fruit. The stock has fallen by more than half during Mr Cryan's tenure and trades at about a third of the value of its assets, compared with JPMorgan Chase & Co's multiple of more than 1.5 times.
While Deutsche Bank's US and UK operations are most at risk in a tighter focus on Germany, the country's export strength means an international footprint is valuable.
"Investment banking is important, especially for the German economy," Mr Sewing told German broadcaster ZDF on Monday. "We want to accompany German companies abroad and we need capital markets products to do so. We're strong there, and that's why we want to remain a leading European investment bank."
Deutsche Bank was set up in 1870 to promote trade for Germany, opening offices in London, China and Japan within its first years of existence. Catering to retail as well as corporate customers became a key part of Deutsche Bank's German identity. But as it expanded in recent years into more far-flung and exotic markets and services, it racked up over US$17 billion in fines and damages for misconduct.
"Germany needs a bank that will continue to be one of the most important players globally," said Andreas Meyer, who manages about 1.4 billion euros (S$2.3 billion) at Aramea Asset Management in Hamburg, including holdings of Deutsche Bank subordinated bonds. "I don't think that pulling out of investment banking is on the cards for Deutsche Bank, given its culture and direction."
Mr Sewing's background in retail banking suggests the lender may intensify its focus on Germany. As Deutsche Bank's international business struggled, domestic operations gained importance, accounting for 37 per cent of group revenue last year, compared with 27 per cent in 2007. While the company has launched a wide-ranging review of its investment banking division, dubbed Project Colombo, it's merging its two domestic retail units, abandoning previous plans to sell the Postbank subsidiary.
Bild, the country's most-read daily newspaper, welcomed Mr Sewing's promotion to CEO as a return to German control that favours the "local branch over Wall Street". "Deutsche Bank back in German hands," Bild headlined on Tuesday.
Mr Sewing, who has experience in risk management and audit and has never worked directly for the investment bank, is keen to have a roughly balanced revenue share for the bank from its two core units, according to people familiar with this thinking.
"Deutsche Bank has a chance to be under the top five or top 10 global investment banks, only if they re-concentrate on the very strong German market," Klaus Nieding, vice-president of shareholder advisory DSW, said in an interview with Bloomberg TV. Germany is "the ultimate strength of Deutsche Bank". BLOOMBERG