April 26, 2018 / 10:08 AM / 7 months ago

Breakingviews - Diminished Deutsche Bank resembles cut-price BNP

A Deutsche Bank logo adorns a wall at the company's headquarters in Frankfurt, Germany June 9, 2015

LONDON (Reuters Breakingviews) - After Deutsche Bank accidentally transferred 28 billion euros to a counterparty a few weeks ago, some joked that the payment was a deferred bonus for former CEO Anshu Jain. Four years after his departure, the German lender is still grappling with the global investment banking business that he championed. New boss Christian Sewing’s plan to scale back equities trading, and make cuts in the United States and Asia, finally lays that vision to rest.

Any lingering illusion that Deutsche can be a global competitor was blown away by first quarter results. Even excluding currency movements and numerous one-off charges, revenue from trading fixed income and currencies was down 12 percent, while equities revenue was broadly flat. That was despite the return of market volatility which Deutsche had previously reassured shareholders would revive those businesses.

Yet while Sewing’s belated recognition of Deutsche’s diminished status is welcome, the future remains daunting.  The 47-year-old wants to boost the bank’s “sustainable” - or less volatile – revenue sources such as German retail lending, asset management, and providing cash management and treasury services to European companies. The plan is that those businesses should bring in 65 percent of group revenue by 2021, up from roughly 63 percent last year.

Continental rivals like BNP Paribas, whose investment banking division brings in just 27 percent of revenue, are the model. The problem is that Deutsche is beginning yet another restructuring from a much lower base of profitability than its Gallic rival, which earned an underlying 11 percent return on tangible equity last year.

Deutsche, which reported a negative return last year, has few of BNP’s strengths. Germany is Europe’s least profitable retail banking market. Though an end to the European Central Bank’s negative interest rates would help, the 25 billion euro lender needs a sustained revenue boost to have any hope generating an acceptable return on equity. A decade since Deutsche’s restructuring began, the real transformation is only just beginning.

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