Dear,
Some days ago, several finance news agencies published comments about the rumors that the Deutsche Bank’s board is considering a dramatic reduction of its retail division.
http://www.reuters.com/article/2015/03/21/us-deutsche-bank-restructuring-idUSKBN0MH0LA20150321
http://www.cnbc.com/id/102339240
http://www.bloombergview.com/articles/2015-03-25/deutsche-bank-doesn-t-want-checking-accounts
Last night I talked about it with a former executive of Deutsche Bank and reader of this blog.
If rumors become true, it would mean a drastic change in the bank’s strategy, considering that just 5 years ago Deutsche Bank acquired Postbank and its 14 million retail clients for 6.3 billion Euros.
https://www.db.com/medien/en/content/press_releases_2010_3173.htm
With the acquisition of Postbank, Deutsche Bank doubled its number of retail customers (from 10 million to 24 million) and branches (from 1,800 to 2,900 in Germany).
Josef Ackermann, chairman of the bank's management board at the time of Postbank acquisition, said in a statement: "In the future, the Deutsche Bank Group will have more stable revenues and a more balanced earnings mix".
Unfortunately, what Mr. Ackerman expected to be “more stable revenues” has ended in higher costs and limited profits.
On 2010, before Postbank acquisition, Deutsche Bank was generating more than 80 percent of its profits from investment banking.
But remember that just two years earlier, the difficulties and insolvencies of the main investment banks (Lehman Brothers, Bear Stearns, Merrill Lynch, etc.) brought very bad reputation to their business model.
A logical alternative was growing in the retail banking, for instance acquiring Postbank.
But today, the challenges are quite different; very low interest rates and limited economic growth is making very difficult for banks to make significant profits in the retail business.
Just one thing is common in the challenges of 2008, 2010 and 2015, capital scarcity of the financial system, a very critical issue which is here to stay.
You could read it here before; capital scarcity is driving a paradigm change of the Financial System, from a business model based in volume to a business model based in efficient capital management.
I can imagine, that 5 years ago, when Deutsche Bank’s executives considered Postbank acquisition, they asked themselves “what would be the profits generated by the investment”.
This is a good question in times of capital abundance, but in times of capital scarcity the question should have been slightly different; “what would be the profits generated by the investment, weighted by capital consumption”.
Today, forced by rising capital requirements and limited profits, Deutsche Bank’s executives are considering a reduction of the bank’s retail arm, getting cash to raise capital and improving their solvency ratios, but it’s likely that they will have to offer a discounted price to do so.
Determining the profit of an investment weighted by capital consumption is the core value of SAP Bank Analyzer, planning the profit of the bank’s investments weighted by capital consumption is the next step.
Just last week I was discussing these ideas with a colleague, when I tried to explain him why SAP Bank Analyzer is not just an Accounting System but an Integrated Financial and Risk System.
The quick answers is that an Accounting System would tell you what’s the value of the bank’s portfolio, while an Integrated Financial and Risk System tells you what’s the value of your portfolio, and how much capital is consumed by the bank, for holding the portfolio.
I’m sure that Deutsche Bank’s executives are very aware of the difference.
Looking forward to read your opinions.
K. Regards,
Ferran.
Some days ago, several finance news agencies published comments about the rumors that the Deutsche Bank’s board is considering a dramatic reduction of its retail division.
http://www.reuters.com/article/2015/03/21/us-deutsche-bank-restructuring-idUSKBN0MH0LA20150321
http://www.cnbc.com/id/102339240
http://www.bloombergview.com/articles/2015-03-25/deutsche-bank-doesn-t-want-checking-accounts
Last night I talked about it with a former executive of Deutsche Bank and reader of this blog.
If rumors become true, it would mean a drastic change in the bank’s strategy, considering that just 5 years ago Deutsche Bank acquired Postbank and its 14 million retail clients for 6.3 billion Euros.
https://www.db.com/medien/en/content/press_releases_2010_3173.htm
With the acquisition of Postbank, Deutsche Bank doubled its number of retail customers (from 10 million to 24 million) and branches (from 1,800 to 2,900 in Germany).
Josef Ackermann, chairman of the bank's management board at the time of Postbank acquisition, said in a statement: "In the future, the Deutsche Bank Group will have more stable revenues and a more balanced earnings mix".
Unfortunately, what Mr. Ackerman expected to be “more stable revenues” has ended in higher costs and limited profits.
On 2010, before Postbank acquisition, Deutsche Bank was generating more than 80 percent of its profits from investment banking.
But remember that just two years earlier, the difficulties and insolvencies of the main investment banks (Lehman Brothers, Bear Stearns, Merrill Lynch, etc.) brought very bad reputation to their business model.
A logical alternative was growing in the retail banking, for instance acquiring Postbank.
But today, the challenges are quite different; very low interest rates and limited economic growth is making very difficult for banks to make significant profits in the retail business.
Just one thing is common in the challenges of 2008, 2010 and 2015, capital scarcity of the financial system, a very critical issue which is here to stay.
You could read it here before; capital scarcity is driving a paradigm change of the Financial System, from a business model based in volume to a business model based in efficient capital management.
I can imagine, that 5 years ago, when Deutsche Bank’s executives considered Postbank acquisition, they asked themselves “what would be the profits generated by the investment”.
This is a good question in times of capital abundance, but in times of capital scarcity the question should have been slightly different; “what would be the profits generated by the investment, weighted by capital consumption”.
Today, forced by rising capital requirements and limited profits, Deutsche Bank’s executives are considering a reduction of the bank’s retail arm, getting cash to raise capital and improving their solvency ratios, but it’s likely that they will have to offer a discounted price to do so.
Determining the profit of an investment weighted by capital consumption is the core value of SAP Bank Analyzer, planning the profit of the bank’s investments weighted by capital consumption is the next step.
Just last week I was discussing these ideas with a colleague, when I tried to explain him why SAP Bank Analyzer is not just an Accounting System but an Integrated Financial and Risk System.
The quick answers is that an Accounting System would tell you what’s the value of the bank’s portfolio, while an Integrated Financial and Risk System tells you what’s the value of your portfolio, and how much capital is consumed by the bank, for holding the portfolio.
I’m sure that Deutsche Bank’s executives are very aware of the difference.
Looking forward to read your opinions.
K. Regards,
Ferran.
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