Deutsche Bank AG has never targeted a specific business reduction in the U.S. as part of its restructuring and has always regarded its business in the country as core, CFO James von Moltke said.
After years of struggling to turn around its troubled franchise and several restructuring attempts, the German group announced its most radical revamp so far in early July. As part of the new plan Deutsche set up a bad bank and earmarked thousands of job cuts by 2022.
The main cutbacks will be in the investment bank, including the exit of equities sales and trading. The U.S., which is Deutsche's second-largest market, looks more affected than other regions given that a large part of group operations there are tied to investment banking.
U.S. "critical" for strategy
In its global strategy, the German group never sought a resizing based on geography but was led by "business line, client-oriented set of strategic decisions," Von Moltke told an audience at the Barclays Financial Services Conference in New York on Sept. 9. "We made global product decisions that had an impact on the U.S.," he said, but noted in the global strategy that "there was never a geography that we thought about exiting."
The U.S. will remain key for Deutsche Bank's strategy, according to Von Moltke. "Our presence in the U.S. is a critical component of what we do to support our clients across all of our businesses," he said.
The group's capability to clear financial instruments in U.S. dollars and provide access to dollar-denominated investment products is "critical" for clients in Deutsche's new corporate bank unit, the private banking arm, and the asset management business, the CFO said.
"If you think about in the investment bank, corporate finance is a strength for us in the U.S.," he said. "We serve industry verticals globally and the U.S. is an important market in all of those industry verticals."
Speaking about the broader restructuring of the group, Von Moltke said Deutsche is making "good progress" and is on track against all of its main targets. There has been "particular progress" in managing the group's equities business exit, he said.
The group has been working on restatements and "will be in a position to show restated financials in the new segment format in early October," Von Moltke said.
Deutsche Bank is slated to release its third-quarter financial statements Oct. 30.
Mid-term revenue target "still achievable"
As part of its latest restructuring plan, Deutsche will separate its more stable investment banking operations, including origination and advisory, and transaction banking, into a new corporate bank unit, which will also house the rest of the group's commercial banking clients. All risk-weighted assets and leverage exposure attached to operations, which Deutsche plans to wind down or sell by 2022, were transferred into a new capital release unit.
The restructuring is aimed at reducing volatility in the group's financial performance and driving better results in the future, according to the group. Deutsche is seeking to boost group revenues to around €25 billion in its core bank by 2022, from €22.8 billion in the core bank in 2018.
The group is seeking between €24 billion and €25 billion in revenues, Von Moltke said. "I think that remains achievable but we are obviously facing a headwind from interest rates and we need to work to offset as much as we can of that impact going forward," he said.
The CFO said the wider overhaul has so far affected revenues from the investment bank less than anticipated. While the sale of the equities business has had a negative effect "we see a recovery from that," he said, adding that revenues in other segments are expected to rise in the third quarter.
In the first half of 2019, the investment bank's revenues were €6.27 billion, accounting for roughly half of group revenues, which stood at €12.55 billion. Revenues from sales and trading in equities, fixed income and currencies accounted for the bulk of investment bank revenues, standing at €3.7 billion in the first half.
Von Moltke said Deutsche has to use market volumes, pricing and growth in fee and commission income as the levers to offset the pressure from policy rates. He said he hopes that the ECB will introduce tiering on deposits soon.
The central bank will hold its next monetary policy meeting on Sept. 12. Many banks have called on the ECB to introduce a tiered rate for excess cash held at central banks. Lenders face high annual costs as a result of the current negative 0.4% rate on all deposits.