Deutsche will bank on mega merger to build new future

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Sky's Ian King says Deutsche's retreat from investment banking activities will be seen as an opportunity for others in Europe.

Most attention, rightly, has been on the 18,000 jobs being cut by Deutsche worldwide. That is only part of the story, though, in what is a dramatic overhaul. The bank is pulling out of some entire activities, most notably equity sales and trading, while reducing activity in others.

Those factors, however, also hint at the problems Deutsche has had in trying to crack investment banking. Deutsche managed, unlike some British and American rivals, to avoid having to be bailed out by taxpayers or being pushed into being rescued by its competitors. That meant that tough decisions were deferred. The dream of beating the Wall Street"bulge bracket" players like Morgan Stanley and JP Morgan survived the crisis in a way it did not at, say, Royal Bank of Scotland.

The same thing did not happen in Europe at anything like the same pace which is one reason why, a decade on from the crisis, Europe's economies are growing much more slowly. Only in September 2012 did Deutsche get around to setting up its own similar unit, called"non-core operations", into which €135bn worth of assets were placed.

That, though, may not be enough to rebuild profits. For a start, interest rates are going to remain negative in the eurozone for the foreseeable future, crushing the profitability of lenders.

 

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