John Cryan is trying to make Deutsche Bank under his leadership look altogether different to the hard-charging institution led by his predecessors. Bonuses are out of fashion. Trading is passe.
Now, the bank wants to move up the ranks in global wealth management, the sensible shoes of the banking industry. The German lender is aiming to be one of the world's top five wealth managers in the next few years, according to this story by Nick Comfort and Giles Broom of Bloomberg News.
What does that entail? Research firm Scorpio Partnership ranks Deutsche Bank at twelfth in the global wealth management industry at the end of 2014 based on assets under management. UBS, Morgan Stanley, Bank of America, Credit Suisse and Royal Bank of Canada hold down spots one through five.
If catching the Canadians doesn't seem like Deutsche Bank is shooting for the moon on this one, bear in mind that, even if it dislodged RBC, the German bank's wealth management unit would still be only about a third of the size of that of UBS, Morgan Stanley or Bank of America -- and that's assuming those other businesses stand still in the meantime.
Still, the broad goal is a worthy one. Wealth management is lighter on capital and less volatile than other banking businesses -- especially trading, Deutsche Bank's traditional strength. (Bloomberg Intelligence estimates trading revenue across the industry will fall as much as 20% in the fourth quarter over the previous three months).
It also plays to favorable macro-economics and demographics -- global wealth is likely to grow at an annual rate of 6.5 per cent in the coming years, according to Credit Suisse. And it produces a relatively steady stream of revenue against a fairly predictable cost base.
Though Deutsche Bank doesn't break out details on its wealth segment, the unit almost certainly produces a significantly higher return than the bank as a whole. Deutsche Bank's normalized return on equity was 6.8 percent in the third quarter, less than UBS's 12.5 percent or Credit Suisse's 7.5 percent, according to Bloomberg Intelligence.
How could Deutsche grow the business significantly? The bank has a few thousand employees dedicated to wealth management now. Adding to that meaningfully would likely mean an acquisition -- that's not on the agenda given Cryan already has his hands full dealing with past conduct failings and a broad restructuring plan.
Instead, the wealth team will try to shift the client mix to focus on those who generate the most fees; invest in a better digital platform for clients that want it; and enhance the bank's existing systems so that staff are in a better position to sell more products. All of which is very sensible.
But it's not that much different to what Deutsche Bank's competitors are already up to -- Credit Suisse under Tidjane Thiam is also expanding its wealth management business, particularly in Asia.
For Deutsche Bank, the competition means that any meaningful impact will be down to better execution of the strategy. In other words, the bank won't find it easy to catch its rivals -- even if its target is less than stretching.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Duncan Mavin in London at email@example.com
To contact the editor responsible for this story:
Edward Evans at firstname.lastname@example.org