Strategy

Deutsche Reaffirms Wealth Drive

Tom Burroughes, Group Editor, 11 December 2019

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The wealth management head of the bank has set out its strategy, as part of a wider reaffirmation of goals from different arms of the group. The lender is de-risking its business, cutting certain functions and adding considerably to the wealth management side. As previously announced, it is adding hundreds of client-facing roles to its wealth arm. The bank also won regulatory relief from the ECB.

(Updates with added detail in paragraphs 6 and 7)

Deutsche Bank’s global wealth management boss yesterday reaffirmed cost targets for this year, 2020 and 2022, and reiterated its plan to reshape its business. At the same time, the European Central Bank cut the Frankfurt-listed lender’s capital requirement – a shot in the arm for a bank that has been under a cloud in recent years.

Adjusted costs before transformation-related charges and the impact of the Global Prime Finance transfer to BNP Paribas are expected to be €21.5 billion ($23.81 billion) in the full year of 2019, with a target of €19.5 billion in 2020 and of €17 billion in 2022, a reduction of nearly €6 billion relative to 2018, the bank said in a statement. The lender reaffirmed its target of an 8 per cent post-tax return on tangible equity in 2022.

For the Core Bank, which excludes the Capital Release Unit, Deutsche Bank yesterday announced a post-tax return on a tangible equity target of above 9 per cent in 2022.

In addition, Deutsche Bank reaffirmed its commitment to delivering its transformation strategy within existing capital resources and to maintaining a Common Equity Tier 1 (CET 1) ratio of at least 12.5 per cent at all times throughout its transformation. Asset reduction in the Capital Release Unit is running ahead of plan. For the end of 2019, the bank currently anticipates that it will report a CET 1 ratio of above 13 per cent.

As previously reported, Deutsche Bank, which is cutting back on investment banking risk exposure, is adding 300 client-facing wealth management professionals over the next two years and has already made a raft of hires. 

Wealth management aims to add around 300 investment management/RM roles globally by 2021 while also trimming back-office and infrastructure jobs. Deutsche Bank said in July that it would shrink its total payroll by 18,000 over the next three years. About 3,000 people work in wealth management across all regions, and that figure is expected to hold steady. The division wants to cut its cost/income ratio by the changes.

A number of staff are being offered chances to move to new roles or different countries; if those offers aren’t taken up then they will be offered redundancy packages, this publication understands. A number of such moves are taking place in the UK. 

Claudio de Sanctis, who took over as global head of Deutsche Bank Wealth Management a few weeks ago, noted that the firm now earns about 60 per cent of client business from ultra-high net worth individuals, with 70 per cent of these being entrepreneurs. About a third of its business is in “core Europe”, about 20 per cent in the US, and more than 40 per cent in emerging markets.

“We’re focusing on hiring client-facing bankers who are dedicated to entrepreneurial families. With such a unique value proposition for these clients, we have been very successful in attracting top talent - around 90 new relationship managers and investment managers in the first nine months - at market rates,” de Sanctis said in a memo seen by this news service. “The results are already reflected in our numbers. We’ve had a turnaround in net new assets, more than offsetting last year’s outflows. Our core revenues rose 5 per cent in the third quarter from a year earlier. Our costs rose just 2 per cent in the first nine months of this year.”

De Sanctis said the wealth business aims to boost revenues by 6 per cent year-on-year, a 10 per cent growth rate excluding the effects of legacy and negative interest rates.

“At the same time, we aim to reduce costs by 100 million euros. We’re doing this by competing where we can win and eliminating non-strategic activities such as single-stock recommendations. And we’re consolidating office space, moving some non-client facing tasks to near- and offshore centres, and implementing Agile by 2021,” de Sanctis said.

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