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Deutsche's private bank reports loss in the third quarter, upsets global ambitions

A staff reporter

13 February 2005

Deutsche Bank's private banking operations reported a loss of €18m in the third quarter of 2002, with assets under management slipping ten per cent to €150bn. Net new money grew only €1bn in the quarter and revenues came under significant pressure, falling by €53m. The performance of DB24, Deutsche's mass affluent offering, was substantially better, recording an underlying profit of €156m during the quarter. "Deutsche's German private banking business is strong but it has failed to build either within the rest of the onshore European market or the offshore market in Switzerland. Their business in the US is also struggling," a London banking analyst told Private Client Management. Deutsche has been in the process of restructuring and making senior manager changes to its private banking/wealth management operations for much of the year. From 1 October, private banking has been divided into two segments, with the ultra-high net-worth segment being serviced by private wealth management and the private clients below this level being hived off into private and business clients. The latter includes DB24 and many small and medium-sized businesses previously dealt with by corporate investment banking. Pierre de Weck runs the private wealth management division out of London. Herbert Walter, considered to be one of the rising stars within Germany's largest banks, runs private and business clients. But both men will have a difficult task in generating growth in the current climate, analysts said. "The weak German economy means the expected boom of private client assets from the sale of small and medium-sized 'Mittelstand' companies is not going to materialise as fast as many bankers had hoped," one analyst said. Deutsche's offshore business, mostly in Switzerland, is struggling and has failed to gain a significant share of the market. Deutsche Bank (Suisse) reported a 34 per cent fall in profits in 2001 and analysts said the business continued to struggle in the tough environment in Switzerland. These results do not bode well for Deutsche Bank's efforts to build a global private banking business to rival its Swiss competitors. A recent report by Merrill Lynch highlighted some of the problems Deutsche faces in building a global private banking brand. "In private banking/private clients Deutsche is well behind its peers both in relative and absolute size. This reflects its lack of either a large offshore private banking business or the large US private client business of its US peers," the report said. The Merrill report highlighted Deutsche's small share of the Swiss offshore private banking market, only controlling a 0.6 per cent share, compared with UBS' eight per cent share and Credit Suisse's 3.7 per cent. "Deutsche, although one of the top five global private banks by funds under management, is less well placed given its (higher cost) onshore business mix. Efficiency improvements should improve the earnings power, but we would expect it to lag well behind the Swiss," Merrill said. Deutsche Bank declined to comment on Friday.