Last month Deutsche Bank, the historic German financial institution, announced a radical shake-up.
Under new co-chief executives Jürgen Fitschen and John Cryan, appointed in the summer to bring a new approach at the 145-year-old bank, Deutsche decided to refocus its activities, withdraw from some big foreign markets and put in a virtually new team to oversee the transformation.
Other European banks have also been forced to adapt to the new realities after the 2009 financial crisis and the euro-zone debt pressures that followed. But, as the national champion of the strongest European economy, Deutsche’s experience is particularly relevant to world’s financial industry.
Ashok Aram, since 2010 the chief executive of the Middle East region, also with responsibility for African business since last year, was one of the beneficiaries of the shake-up. He was given responsibility for the bank’s core European business too, excluding Germany and the United Kingdom.
Here, in the second part of an exclusive interview with The National, he explains the reasons for the radical changes and maps the way forward for the new-look Deutsche Bank.
What is driving so much change in the banking sector?
Significant changes continue in the global banking sector. They are driven by new regulatory requirements around capital ratios which aim to make the industry carry a lot more core equity and loss-absorbing capital as well as significant upgrade of control functions to enable compliance with a whole variety of new monitoring, reporting and resolution requirements at the legal entity level as well as to overcome conduct issues.
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Looking back
■ Deutsche Bank's Ashok Aram outlines five years of achievements and challenges. Read here
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So, are the regulators driving these changes?
Some of these are being driven at the financial stability board and Basel Committee level and some are being driven by national regulators and legislators. Resolution of legacy legal issues, upgrading of technology and operations to enable both efficient and effective monitoring and reporting are also key ongoing themes. This has forced global banks to reduce the scope and complexity of their activities along products, geographies and clients. Some banks which had to be bailed out with national tax payer monies have as a consequence been forced to de-globalise and focus back on their home countries.
Is there a new ethos in the post-crisis banking industry?
This is being driven by a recognition that a new culture has to take root which better rebalances the interests of all four stakeholders – clients, shareholders, regulators and employees. Clients want financing, reliability and ease of global access, regulators want safety and stability, shareholders want capital gains and dividends and employees want a career perspective and competitive compensation. All this has to be balanced and executed upon. So change is inevitable.
What does the new approach, Strategy 2020, entail?
The core thrust of Strategy 2020 is successful and timely execution of our announced plans. Strategy 2020 is a very detailed plan, with an intermediate milestone in 2018. We aim to have stable and strong capital ratios expected of ‘global systemically important banks’ [otherwise known as the “too big to fail” banks] and these ratios have been further enhanced to create a greater capital cushion. This remains an ongoing journey which started some years ago.
What are the specific targets?
Numerically the objectives translate to a fully loaded core liquidity and stable funding we are very strong and we will maintain that. Improving our control framework and accelerating the resolution of our legacy legal files, reducing complexity and narrowing the perimeter of operations are also key thrust areas.
What will this mean for costs?
We expect to reduce costs by €3.8bn on a gross basis and €1.5bn on a net basis. For our shareholders, these measures will translate to a return of tangible equity of greater than 10 per cent and the restoration of competitive dividends from 2017. Some key steps involved in Strategy 2020 are the deconsolidation of Postbank in Germany and further reduction of 200 retail branches in Germany, continuing the sale of our identified non-core assets and bringing it to completion, reducing net assets by €70bn in the investment bank and exiting 10 countries, mainly in Latin America and the Nordic regions. In parallel, significant investments will also go into enhancing our technology and operations systems to achieve even higher levels of automation and be better prepared for the changes being brought about by digitalisation on the one side and new regulations and control requirements on the other side.
And what will it mean for jobs, growth and efficiency?
Staff levels will also come down from around 100,000 today to 70,000 by 2020 ,both through portfolio and efficiency measures. We will further grow our corporate finance and transaction banking business, private wealth and asset management divisions in our core regions. The core regions of Europe, the Middle East and Africa, the United States and Asia-Pacific, will see investments for growth now that our basic geographic footprint has been finalised. Our regional management structures will take better account of our local regulatory requirements. Globally, committees will be appropriately reduced to increase individual accountability and more effective decision making around client requirements as well as enhanced control requirements.
fkane@thenational.ae
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