Deutsche Banks decision to trim the number of its operating groups to two from five reflects a trend among global banks to create distinct units for product creation and distribution and then encourage the groups to work closely together.
Deutsche Bank rival companies including Credit Suisse Group, Chase Manhattan Corp., and Citigroup Inc. have taken similar steps to account for mergers that have put an asset management arm, a private bank, and an investment bank under one roof.
The company said Monday that starting Feb. 1 its retail, private banking, and asset management divisions will be in one supergroup. Its corporate, real estate, institutions, and much of its technology services will be combined into another such group.
Deutsche Bank spokesman Ronald Weichert said the restructuring hones a structure put in place three years ago, when the $875 billion-asset Frankfurt company arranged its businesses into client groups. We will have one side geared toward origination and the other side that will be distribution, he said of the current reorganization effort. Building connectivity between these two sides will be the main task of the bank going forward.
Banking companies are trying to attract wealthy individuals to their private banking divisions by dangling access to the initial public offerings, private equity funds, and other products created by their investment banking groups. The reverse is also true. Banks are hoping to capture more high-net-worth business by offering asset management and personal financial planning advice to IPO and other corporate clients.
The strategy was key to many of this years high-profile deals, including UBS AGs acquisition of the brokerage PaineWebber Group and Chases pending deal for J.P. Morgan & Co.
Analysts said there are still questions of how to harmonize asset management and investment banking. There are lots of ways of leveraging those businesses against each other, said David Berry, a banking analyst at Keefe, Bruyette & Woods. The investment banking operation can create products for very high-net-worth clients. But how do you foster coordination between these groups?
Until its recent agreement to buy Morgan, Chase attempted to put its high-net-worth private banking business under the umbrella of its investment bank, hoping entrepreneurs who needed help bringing their companies public would also be interested in private banking advice. But plans for the combined Chase-J.P. Morgan call for a structure more like the new one at Deutsche Bank, putting asset management and private banking in one camp and investment banking in another.
Citigroup representing the 1998 combination of Citicorp and Travelers Group has since put its private banking operations under its Citi SSB Asset Management unit, at least for financial reporting purposes. Salomon Smith Barney, its investment banking operation, is separate.
At Credit Suisse, the investment bank, the private bank and the asset management arms are all separate, which raises questions about how the company ensures that its acquisitions, like the Nov. 3 purchase of Donaldson, Lufkin & Jenrette, actually pay off.
Credit Suisse spokesman Andreas Hildenbrand said one solution is to have the right incentive program in place. Relationship managers in the private bank work closely with the product manufacturers in Credit Suisse First Boston, he said.
The issue of structure and synergy is a complicated one, says Peter Carroll, a managing director at the consulting firm Oliver, Wyman & Co. One reason is private bankers need the freedom to offer the best advice possible to their affluent clientele, even if that means helping them buy products that are from outside the company.
Advisers are not supposed to stuff their private banking customers with their own products, Mr. Carroll said. Its a perennial conflict of interest. If they are placing 90% of their product with their private clients, then they are probably screwing their private clients.
Many companies, including Chase and Credit Suisse, say they operate an open architecture private bank, meaning they recommend the best products for their clients regardless of where they are manufactured.
But the impetus behind many of the deals to expand offerings at financial services companies is to boost cross-selling and cross-fertilization.
Keefe Bruyettes Mr. Berry says Chase is only now beginning to reap the benefits of its August acquisition of the asset manager Robert Fleming. From all reports, the merger with J.P. Morgan should bolster its combined asset management and private banking activities.
Citigroup, Mr. Berry says, is doing an even better job, but the much-vaunted synergies of the Citibank-Travelers merger have not yet become the main factor in profitability. Its working more than it would be if they hadnt even tried cross-selling, but it hasnt reached its potential and its not driving the results, he said. Not even close.
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