Deutsche Bank’s Jain Sees ‘Significant’ Bank Consolidation
“Only a few strong, large universal banks will remain,” including Deutsche Bank, Germany’s largest lender, Jain said today at a conference in Dubai. Since the global financial crisis, the leading global investment banks have reduced their leverage by 40 percent and increased their so-called tier 1 capital by 160 percent, according to Jain.
Under the Basel Committee on Banking Supervision’s latest round of rules, European lenders will be expected to hold more than three times their so-called core capital as a buffer against insolvency than before the financial crisis. Jain said consolidation is the “unintended consequence” of such new regulations as some banks retreat from previous plans.
“The number of banks still keen to play the role of being a global multi-location universal bank has shrunk,” Jain said. “The price of being global has gone up dramatically, and the desire to be a global bank has dropped off.”
One-third of global banks will end their global ambitions, with fewer than 10 maintaining a global footprint, according to a November report by consultancy Roland Berger.
Investment banks will make a further 40,000 job cuts after the 25,000 already announced, and firms will shift from tactical cost reductions to a “radical redesign” of their operations as regulations change, the report said.
UBS AG (UBSN) became the latest European bank to scale back when it said it would reduce fixed-income trading last month, eliminating 10,000 jobs. Royal Bank of Scotland Group Plc said in January that it will close or sell its equity and merger-advisory divisions.
“I think by the time we’re done, we’ll have five or six universal banks left standing,” Jain said. “Clearly, Deutsche Bank wants to be one of them.”
Jain also said that over-regulation of the banking industry would lessen the supply of credit, hurting small and medium-sized enterprises.
Deutsche Bank is cutting 1,993 staff and combining its fixed-income and foreign-exchange units. The bank reported an unexpected 3 percent gain in third-quarter profit on Oct. 30, helped by a rally in bond and stock markets that boosted trading.
No Euro Exit
The lender will boost core tier 1 capital to at least 8 percent of its assets weighted by risk under the stricter Basel III rules by the end of March, and that ratio will rise to more than 10 percent two years later, Jain and co-CEO Juergen Fitschen said in September.
Jain said today that he expects the euro region to “remain intact,” and that the risk of a country leaving the single currency had diminished significantly after the European Central Bank pledged to support bond markets in July.
“Fiscal consolidation has already reduced deficits in peripheral countries, progress has been made on labor market and pension reform, and pan-European containment mechanisms, or ’firewalls,’ have been strengthened,” he said in copy of the speech given to reporters. Europe still faces a “very extensive structural realignment,” he said.
European finance ministers today failed to agree on a debt-reduction package for Greece after battling with the International Monetary Fund over how to nurse the recession-wracked country back to fiscal health.
Deutsche Bank fell 0.8 percent to 32.91 euros at 11 a.m. in Frankfurt trading. The stock has risen 12 percent this year, trailing the 17 percent advance for the benchmark Stoxx 600 Banks index.
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