Anshu Jain, Deutsche Bank AG (NYSE:DB) (FRA:DBK) Co-CEO and Co-Chairman, spoke with Bloomberg Television’s Stephanie Ruhle today about the bank’s business strategy, financial regulation and industry outlook.
Jain discussed opportunities in Europe: “Europe is stable now, so two years ago, people were calling for the demise of the Eurozone. People were talking about the default of Italy. Greece is going through a very difficult time. Let’s really acknowledge what Europe has accomplished. Two institutions have been built. The OMT program is highly successful. The ECB has done a lot to create stability. We’re now going through the single supervisory mechanism process, which I think will be very good as well. You are right in saying GDP growth is still slow to come and I think that really will be the challenge over the next few years.”
He also noted: “We still see enough opportunity in emerging markets where I think it’s worth braving those considerations.”
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On how much time Deutsche Bank AG (NYSE:DB) (FRA:DBK) devotes to litigation, Jain said: “It is one of the three headwinds that we have talked about. Unfortunately, it is one which will be with us for a little while longer…It’s challenging and something which we have acknowledged, especially in 2014, will remain a headwind. I think it’ll be the case in 2015 potentially as well. We’ve provided that guidance, very hard to predict, though.”
*Deutsche Bank Has `very Unique Business Model’
*European Investment Banking Landscape Is Changing
*Wants To Target Core Business In Europe
*Clients Tell Him They Want Bank’s Offering
*Deutsche Bank Has Always Grown By Bringing Talent In
*Deutsche Bank Has `terrific Brand’ Among New Hires
*Legal Issues To Be With Us For A Little While Longer
*2014 Will Continue To Be Challenging On Legal Issues
*Still Sees Opportunities In Emerging Markets
*’Europe Is Stable Now’; ECB Has Done A Lot To Create Stability
*Sees Preconditions For Consolidation After ECB Tests
Jain: Deutsche Bank’s Business Model ‘Very Unique’
STEPHANIE RUHLE, BLOOMBERG TV HOST: We’re talking about what Deutsche Bank is doing right now. It’s like a tale of two European investment banks. Barclays seems to be retrenching and getting out of businesses while you are leaning in. Why?
ANSHU JAIN, CHAIRMAN, DEUTSCHE BANK: I would like to think of this in a broader context, Stephanie. Deutsche has a very unique business model. Let’s not forget we are a global commercial bank. We’re a very strong wealth asset might. We’ve got terrific retail operations, especially in Germany but beyond Germany as well. And of course the global investment bank. So you need balance across those four businesses in 74 locations. Yes, it’s true; the European landscape for banking is changing. And Deutsche’s taking the costs.
RUHLE: But I guess my surprise is in fixed income. This is a time where you’re seeing Morgan Stanley, again, get out of those businesses, push more into wealth management. You making these hires. You just announced the hiring of Chris Yoshida. She’s a global head of your rates business. Why are you pushing into those businesses when it seems like they are struggling to make money?
Deutsche Bank’s Jain: Step back two years, we’ve got head count 17 percent. We have got balance sheets at 20 percent. Risk weighted assets over 20 percent. So the reality is we saw a lot of the issues which fixed income was facing, both structural and cyclical early. We positioned the bank well for it. And I frankly wouldn’t have picked what we’re doing right now as a pushing-in or a leaning-in. This is part of the natural cycles of the business. We have done very well in certain areas. As others, we would like to target incrementally.
RUHLE: Like where?
Deutsche Bank’s Jain: A combination of places. Our core business in Europe, don’t forget, that’s where the tectonic plate movement is really happening. Our clients are telling us that they really want a global client servicing them. So we remain committed to our core European franchise. But also here in the U.S. where we see growth as being strong, we are making a few selected targeted moves to reposition the bank.
RUHLE: Deutsche Bank is very well known for being the best in complicated businesses: derivatives, structured products, in a time where bank is streamlining due to regulation and focusing on meat-and-potato businesses. Where is your edge going to be if that is not even your expertise?
Deutsche Bank’s Jain: Again, not sure that I would agree with that characterization. Think about Deutsche Bank, you think foreign exchange. You think financing, you think repo, you think leveled debt capital markets, prime brokerage. It has been a very, very balanced strategy with clients at the core of it. And that continues to be the case. Opportunities will wax and wane. But a concept of providing comprehensive, well-linked service on a global basis, that’s what DB is about.
RUHLE: Is there a risk in bringing in external hires to run businesses? You are a culture guy. You have built Deutsche Bank to be an Anshu Jain likeness. While you bring in big time hires from the outside, how do you build your culture? Earlier the CEO of SocGen was talking about the importance of creating happy bankers. How are you going to do that?
Deutsche Bank’s Jain: Well, I’m not sure that personality cults are terrific for any institution. So Juergen Fitschen and I both work very closely together to make sure that we have the right balance of culture and values. Deutsche, let’s not forget, has always grown through bringing talent in, from a variety of sources. That was the genesis of the start, especially by an investment bank. We have done that in a variety of cases. And as long as you get the right mix of talent things work well.
Let me tell you, Stephanie, what I am most excited about, I still go on campus. I still talk to the youngsters. And Deutsche is a terrific brand globally. It’s really that blend of people who’ve been a long time, are graduates. And yes, a few selected hires of the type you have mentioned.
RUHLE: How much of your enthusiasm is tempered, because you have to devote so much time to litigation?
Deutsche Bank’s Jain: It is one of the three headwinds that we have talked about. Unfortunately, it is one which will be with us for a little while longer. And it has a lot to do with some of the instances that took place many years ago. And really our focus is to make sure that through cultural change, we ensure that beyond setting up five years from now, talking about fresh issues which have taken place, post-that very challenge…
RUHLE: How much longer do you think you’ll have to wait? How much longer do shareholders have to hold their breath getting through these litigation issues?
Deutsche Bank’s Jain: It’s challenging and something which we have acknowledged, especially in 2014, will remain a headwind. I think it’ll be the case in 2015 potentially as well. We’ve provided that guidance, very hard to predict, though.
RUHLE: For those who say your capital raise is not enough money to get the bank truly flying right, to be ahead of the curve, what do you say to that?
Deutsche Bank’s Jain: 11.8 percent core tier 1 ratio? I don’t have to say much more.
RUHLE: Do you feel like there are certain areas where you want to take that money and invest? You’ve said fixed income, but equity seems to be a great place, though it’s a low margin business.
JAIN: To begin with, let me point out that the capital raise is really being done in order to create a capital buffer for us. So we have gone from 9.5 percent to 11.8 percent. We do recognize the fact that there will be headwinds, both from a litigation standpoint. We touched on that. But a regulatory standpoint as well; we have the AQR stress test coming and so on and so forth. So we want to make sure that there is a very adequate buffer.
Over and above that, there are four teams we’ve talked about as marked out point for incremental investment. We are digitizing our German retail business. We are hiring both managers on a global basis, on an accelerated global basis. I’ll be going after marking national corporations and really expanding our product offering there. And finally in CBNS, there is a targeted investment in a few places.
Deutsche Bank’s Jain: How about emerging markets? Earlier when I spoke to SocGen’s CEO, and we’ve heard them before talk about their commitment to Russia, it makes many investors uncomfortable when we talk Russia and Africa. There’s huge risks associated. Many people aren’t comfortable with rule of law. How do you feel about Russia and emerging markets in general?
Deutsche Bank’s Jain: The high GDP growth of emerging markets offer bring in their wake a fair amount of volatility. It’s always been the case. Political stability, rule of law, the deep institutions that you can count on in Western markets don’t always exist. So you have to make sure that you pursue these opportunities with the right level of prudence. But to us, we still see enough opportunity in emerging markets where I think it’s worth braving those considerations.
RUHLE: How are opportunities in Europe? Though you do spend your life traveling the world, you’re domiciled in London and spend a lot of time in Germany. Does it seem like there is great opportunities in Europe? Those who say European banks still have a tremendous amount of delevering, is that true?
Deutsche Bank’s Jain: Europe is stable now, so two years ago, people were calling for the demise of the Eurozone. People were talking about the default of Italy. Greece is going through a very difficult time. Let’s really acknowledge what Europe has accomplished.
Two institutions have been built. The OMT program is highly successful. The ECB has done a lot to create stability. We’re now going through the single supervisory mechanism process, which I think will be very good as well. You are right in saying GDP growth is still slow to come and I think that really will be the challenge over the next few years.
RUHLE: With the ECB as a single supervisor, do you think there will be cross-border consolidation? Do we need a UBS AG (NYSE:UBS), a Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) (LON:RBS), a Deutsche Bank, a Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPA:GLE), or could we see consolidation here?
Deutsche Bank’s Jain: Hard to comment on specifics, but yes, the preconditions of consolidation will exist once we go through the SSM stress test AQR process. Without that, I think it was very challenging. Post-that, the preconditions will be in place. A lot more needs to happen, though, for that to really become a trend.
RUHLE: How challenging is it for you to be a premier investment bank when you have to deal with regulators in Germany as well as in the U.S.? How hard is it for you to compete on an equal playing field with a Morgan Stanley (NYSE:MS), a JPMorgan Chase & Co. (NYSE:JPM), a Goldman Sachs Group Inc (NYSE:GS)?
Deutsche Bank’s Jain: Goes with the terrain. They have to deal with regulation here and some in the U.S. and then in Europe when they come across. So that’s not unique.
RUHLE: What is Deutsche Bank’s number one strength? Right now while you are competing for human capital, while so many talented people from the business want to go to the buy side, what is Deutsche Bank’s number one offering?
Deutsche Bank’s Jain: Tremendously deeply anchored in Germany, which is Europe’s leading country in many, many ways and this tremendous global diversity.
RUHLE: Those who are considering this investment from Qatar, is Qatar starting to be the lender of last resorts for banks? What do you say to that?
Deutsche Bank’s Jain: I’m not sure — if we’re talking about lending, we’re talking about taking an equity stake in Deutsche Bank, which we welcome. And again, it’s something they have done, from what I can see, in a variety of very successful companies across a variety of industries.
RUHLE: What’s your biggest challenge going to be with this new capital that you have?
Deutsche Bank’s Jain: Obtaining ROE on a bigger equity base. That straight mathematics. You need greater efficiency, higher earnings to make sure that you can provide an adequate return —
RUHLE: Here we are at your financial institution’s conference. What is your goal? What message do you want to get out there about the industry right now?
Deutsche Bank’s Jain: Well, first of all, we’re delighted; 70 banks, $25 trillion in assets, 16 countries represented. We’re delighted that it is that successful a conference as it is. Early days; the conference has just begun. I would imagine that the changing and evolving landscape — I think we are finally entering the post-crisis phase of the banking industry. So you will see more change now in the next five years than you have seen in the last five. And I dare say that’s what will be uppermost in the minds of most CEOs and CFOs here.
RUHLE: Anshu, thank you so much.