Deutsche sounds global retreat; banks push for checking deposits

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Fight for survival
Deutsche Bank announced a plan to “gut its global ambitions as a trading powerhouse, cutting 18,000 jobs and retreating to its German banking roots in a radical overhaul to try to save itself after years of decline.” The plan “reorders the bank’s executive ranks under Chief Executive Christian Sewing, with several senior officials leaving and business lines redrawn for the third time in four years.”

“The German lender’s struggles have been symptomatic of a broader malaise among Europe’s investment banks. Struggling with low interest rates and political uncertainty, Europeans are dominated by U.S. rivals on their home turf.” Wall Street Journal, Financial Times

“The new strategy signals a retreat from Deutsche’s global ambitions and its aim to be Europe’s main rival to Goldman Sachs,” the Financial Times says. “One year ahead of Deutsche’s 150th anniversary, Mr. Sewing is refocusing the lender on its historic foundations — financing German and European corporate clients and domestic retail banking.”

The plan includes creation of a new bad bank, or “capital release unit” that will house the bank’s riskiest assets. “The lender expects asset disposals will allow it to return €5 billion to shareholders either via special dividends or share buybacks.”

“The question now is will it work?” the FT asks. “Will it give the German bank a credible operating model for the future?"

“The bank that once symbolized German economic prowess is effectively abandoning any hope of playing in the same league as Goldman Sachs or JPMorgan Chase, and struggling simply to remain relevant,” the New York Times comments.

At the same time, the bank is “caught in a legal tug of war between [President] Trump and House Democrats for the president’s financial records and calls for broad investigations of its anti-money-laundering practices," the Washington Post reports. "Investigations surrounding Deutsche Bank’s more than decade-long relationship with President Trump and his business have created a crisis for the German financial giant.”

The “culling” of 18,000 jobs at the bank began Monday morning, “with whole teams of equity traders in Tokyo and other Asian locations dismissed.”

The bank’s stock was down more than 1% in early trading on Monday.

Avoidance
Banks in both the U.S. and Europe are “are steering clear” of Libra “for fear of antagonizing regulators and cannibalizing their own digital currency projects. In the two weeks since Facebook announced its plans for a new digital currency, there has been silence from the banks about a project that threatens to break down their role as gatekeepers of the global financial system.”

Following a request from a bipartisan group of 20 members of Congress, the Internal Revenue Service is expected to soon update its 2014 guidance on cryptocurrencies as “part of a broader push to boost the nascent cryptocurrency industry. Congress is considering at least three bills that would resolve some of the murky legal issues surrounding digital money. The question has taken on added urgency since Facebook unveiled its Libra payments network, the most ambitious attempt yet to get cryptocurrency in the hands of mainstream users.”

Money matters
Bank and finance CEOs in the S&P 500 got median raises of 8.5% last year even as they delivered median shareholder returns of negative 17%.

But that isn’t stopping bankers from fighting in court for pay or bonuses.

Fooled again
Punjab National Bank, India’s second largest state-owned bank, said it was defrauded out of $556 million by an “ailing” steel company just a year after it was duped out of $2 billion by India’s “jeweler to the stars” in what was “one of the country’s biggest banking scams.”

“The [steel] company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks,” PNB said in a statement over the weekend.

“The two scandals have highlighted concerns about corporate governance standards at the heart of India’s banking system, in which public lenders account for roughly two-thirds of bank assets.”

Wall Street Journal

Checking on checking
U.S. banks “are pulling out all the stops to attract checking-account deposits,” hoping to “stand out in a crowded field — and lower their cost of funding.” Citigroup, for example, is offering customers of its “top-tier Citigold account a $200 annual rebate if they use their checking accounts to pay for a range of services from partner retailers.”

“Banks prize checking-account cash above nearly all other kinds of funding. Customers rarely move that money to other banks, don’t expect much if anything in interest and often seek out their banks’ other services. But depositors have been shifting cash into savings and money-market accounts that have lifted their rates in recent years, raising banks’ overall funding cost.”

Financial Times

Beefing up
Revolut, the fast-growing U.K. fintech, plans to name Michael Sherwood, former head of Goldman Sachs’s European unit, to its board “as part of efforts to improve corporate governance after a series of missteps,” including questions from regulators in several countries “over its ability to combat illicit money transfers.”

His hiring follows the appointment last week of Richard Davies as Revolut’s chief operating officer. Davies previously held senior positions at TSB and HSBC.

Quotable

“We are returning to our roots and to what once made us one of the leading banks in the world.” — Deutsche Bank CEO Christian Sewing, announcing a major retreat in the German bank’s global footprint

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