Michele Faissola, who spent 17 years helping expand Deutsche Bank AG’s investment bank, has a new project: building a money management unit that can compete with UBS AG and Credit Suisse Group AG.
Faissola was put in charge of Deutsche Bank’s newly combined asset and wealth management division in June when Anshu Jain and Juergen Fitschen took over as co-chief executive officers of the Frankfurt-based lender. Faissola, 44, will name his leadership team next week as he sets about cutting 700 million euros ($902 million) of costs to more than double the unit’s profit by 2015.
Banks are searching for alternate sources of revenue as Europe’s sovereign-debt crisis and stricter regulation curb investment-banking profits. Faissola must turn a tide of client redemptions in asset management after a failed sale of some units earlier this year, while competing with firms such as UBS of Zurich that are redoubling efforts to lure rich clients.
“This is one of the toughest management challenges and largest turnarounds that we have,” Jain, 49, said in an interview. “Michele is very much being entrusted with a critical mission for us.”
Faissola, who has known Jain since 1995 and reported to him since 2000, was named head of the new unit after helping expand Deutsche Bank’s rates and commodities operations and building the exchange-traded funds business from its inception, Jain said. He’s succeeded in each of the challenges, according to the co-CEO.
Faissola’s current task hasn’t been made easier by Deutsche Bank’s aborted effort to sell businesses accounting for about 80 percent of the 544 billion euros of invested funds the asset management unit had at the end of 2011. The company also oversaw 269 billion euros for wealthy clients.
The bank canceled talks with U.S. money manager Guggenheim Partners LLC on a sale of its DWS mutual funds in the Americas, advisory units for institutional investors and insurance firms and the RREEF real-estate division earlier this year.
The asset management division had about 16 billion euros in net outflows in the first half as it was unable to pitch for clients during the sale talks and as customers shied from investments amid the debt crisis, according to Deutsche Bank.
“The disruption from the sale process risks the loss of talent and mandates in the coming quarters,” said Kinner Lakhani, an analyst with Citigroup Inc. in London who has a neutral recommendation on the stock. “Even if set straight, the franchise may take some time to heal.”
Deutsche Bank can only reach a goal of generating an after-tax return on equity of 12 percent or more by 2015 if the asset and wealth management and global transaction banking businesses double profit, Jain told analysts on Sept. 11 in Frankfurt.
The company plans to boost pretax earnings at the asset and wealth management unit to about 1.7 billion euros in 2015 from 800 million euros last year, the bank said this week.
Faissola plans to save money by eliminating overlap as he brings Deutsche Bank’s far-flung asset and wealth management operations under a unified structure, he told analysts in Frankfurt. He started to combine the division’s institutional and insurance businesses and closed an investment office in Louisville, Kentucky, he said at the briefing.
“There’s probably great potential for cost savings by assimilating the businesses that make up the new division,” said Ingo Frommen, an analyst with Landesbank Baden-Wuerttemberg in Stuttgart who recommends investors buy Deutsche Bank shares.
The units were “run in a vertical fashion and each product line or regional line had their own sales force going to clients, sometimes not even knowing there was another sales force pitching,” Faissola said. “We have multiple marketing teams, multiple strategy teams. We have a very fragmented real estate strategy with people scattered all over the map.”
Deutsche Bank will spend about 400 million euros reducing costs at the division and boosting revenue by 300 million euros by 2015, Faissola forecast on Sept. 12. He declined to comment for this article through his spokesman, Baki Irmak.
“This looks like the toughest challenge that any of Deutsche Bank’s units have set,” said Helmut Hipper, a fund manager at Union Investment, which holds about 1 percent of Deutsche Bank’s shares. “This division has missed targets in the past and there’s a lack of trust among shareholders. But we all like to be positively surprised.”
The businesses trail some peers. The combined asset- and wealth-management units had a pretax return on equity of 13 percent last year, while UBS’s wealth-management unit posted pretax ROE of 53.5 percent and its global asset management unit had pretax ROE of 17.1 percent, company reports show. Credit Suisse’s private banking unit, which includes its wealth management, retail, corporate and institutional businesses, had a pretax ROE of 33.7 percent in 2011, while its asset management unit reached 19.2 percent.
Building up the asset and wealth management business looks increasingly attractive as tougher capital rules, Europe’s debt crisis and sputtering economic growth weigh on profit at the investment bank, Deutsche Bank’s biggest unit, said Dieter Hein, an analyst with Fairesearch GmbH in Kronberg.
The forecast for revenue growth at that division, known as corporate banking & securities, is “subdued,” Colin Fan and Robert Rankin, who run the unit, said Sept. 12. The investment bank is targeting after-tax ROE of about 15 percent in 2015.
“With investment banking becoming less appealing, asset management looks more attractive in comparison,” said Hein. “But only profitable business is worth doing.”
Faissola’s approach to solving problems helps him see his work in context, said Eric Litvack, who worked with him on the International Swaps and Derivatives Association’s board before Faissola stepped down this year.
“Michele generally displays a quick and calm analysis and a better capacity than most to see how events fit into the bigger picture,” said Litvack, the global chief operating officer of global equity flow at Societe Generale SA in Paris. “If I had to sum his input up in one word, that word would be ‘gravitas.’”
At ISDA, Faissola helped determine that Greece’s use of collective action clauses in a restructuring of its sovereign debt constituted a credit event that triggered payouts of as much as $2.5 billion to settle default insurance contracts. He also helped set rules after the U.S. government seizure of Fannie Mae and Freddie Mac.
Faissola joined Deutsche Bank as a proprietary trader in 1995 from Banca Nazionale dell’Agricoltura SpA, where he was head of capital markets. Edson Mitchell, who mentored Jain, hired Faissola from the unit of Banca di Roma SpA. The Italian moved through the investment bank’s ranks before becoming global head of rates and commodities in 2010.
Faissola told analysts on Sept. 12 that he can rely on the investment bank’s sales force and the unit’s expertise when catering to the wealthiest clients, and also tap its presence in emerging markets to help his division sell products there.
The asset and wealth management unit will also add businesses that were previously at the investment bank. The division will gain Abbey Life, the life insurance unit of London-based Lloyds TSB Bank Plc that Deutsche Bank acquired in 2007, the ETF business and units that provide services to hedge funds.
“If you particularly look at the ultra-high net worth coverage model, the Swiss firms and Goldman Sachs, to name three of our competitors, do a far better job,” said Jain. “Cooperation between the investment bank and wealth management particularly is something which we think we can mine. It’s approaching clients together and more cohesively.”
China, India and Singapore posted the biggest increases in millionaires last year as the Asia-Pacific region countered a decline in wealth in western Europe and the U.S., according to Boston Consulting Group.
Deutsche Bank said it wants to boost the number of ultra-high net worth individuals it caters to by about 50 percent by 2015. The firm didn’t say how many of these customers it has.
The assets under management of such investors will rise to 27 trillion euros in 2015 from 21 trillion euros last year, the bank said, citing data from Boston Consulting.
Even so, competition for such clients is intense and there is no quick path to success, said Simon Adamson, an analyst with CreditSights Inc. in London.
“It won’t be easy to convince people that Deutsche now really has a long-term strategy for the business in place,” Adamson said. “What it now needs is a long period of stability to rebuild the business.”