Opinion
Now Is the Time for Deutsche Bank to Consider a Split
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After spinning off its investment banking activities, a smaller and de-risked Deutsche Bank, retaining some wholesale lending business, would still be a world-class commercial lender, a leader in serving mid-size industrial companies in Europe, a large and growing wealth manager and a powerful transaction services provider.
By Roy C. Smith and Brad Hintz
It’s long well past time for Deutsche Bank’s long-suffering shareholders to challenge the holy writ of universal banking. The bank’s strategic challenges were made clear in late January when its fourth-quarter results showed return on equity of 2.6%, about 20% of its cost of equity capital. Management said the performance was “encouraging” – but the equity market continues to value the bank’s shares at only half book value.
Jürgen Fitschen and Anshu Jain, Deutsche’s co-chief executives, say they are committed to preserving the bank’s traditional “universal banking” strategy and determined to remain among the top five investment banks. But their “Strategy 2015+,” announced soon after they took over in 2012, now looks hopeless. Goals of a cost/income ratio of 65% and an after-tax return on equity of 15% by 2015 seem truly out of reach.
Yet, Deutsche Bank has been a relative winner, as other banks such as UBS, Morgan Stanley and Barclays have cut back their investment banking or trading activities. In 2014, Deutsche’s investment banking unit ranked third in both global debt underwriting and loan syndication revenue, according to Dealogic. Fitschen said: “We see good opportunities to win market share… when some of our competitors are pulling back from investment banking.”
Read full article as published in Financial News
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Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a professor of Management Practice. Brad Hintz is an adjunct professor of Finance.
Jürgen Fitschen and Anshu Jain, Deutsche’s co-chief executives, say they are committed to preserving the bank’s traditional “universal banking” strategy and determined to remain among the top five investment banks. But their “Strategy 2015+,” announced soon after they took over in 2012, now looks hopeless. Goals of a cost/income ratio of 65% and an after-tax return on equity of 15% by 2015 seem truly out of reach.
Yet, Deutsche Bank has been a relative winner, as other banks such as UBS, Morgan Stanley and Barclays have cut back their investment banking or trading activities. In 2014, Deutsche’s investment banking unit ranked third in both global debt underwriting and loan syndication revenue, according to Dealogic. Fitschen said: “We see good opportunities to win market share… when some of our competitors are pulling back from investment banking.”
Read full article as published in Financial News
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Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a professor of Management Practice. Brad Hintz is an adjunct professor of Finance.