Deutsche Bank’s Jain sees sig­nif­i­cant con­sol­i­da­tion

The Pak Banker - - Front Page -

DUBAI

Deutsche Bank co-Chief Ex­ec­u­tive Of­fi­cer An­shu Jain said he ex­pects sig­nif­i­cant con­sol­i­da­tion in the global bank­ing in­dus­try amid new reg­u­la­tions on cap­i­tal re­quire­ments.

Only a few strong, large univer­sal banks will re­main, in­clud­ing Deutsche Bank, Ger­many’s largest lender, Jain said Wed­nes­day at a con­fer­ence. Since the global fi­nan­cial cri­sis, the lead­ing global in­vest­ment banks have re­duced their lever­age by 40 per­cent and in­creased their so-called tier 1 cap­i­tal by 160 per­cent, ac­cord­ing to Jain.

Un­der the Basel Com­mit­tee on Bank­ing Su­per­vi­sion’s lat­est round of rules, Euro­pean lenders will be expected to hold more than three times their so-called core cap­i­tal as a buf­fer against in­sol­vency than be­fore the fi­nan­cial cri­sis. Jain said con­sol­i­da­tion is the “un­in­tended con­se­quence” of such new reg­u­la­tions as some banks re­treat from pre­vi­ous plans. “The num­ber of banks still keen to play the role of be­ing a global multi-lo­ca­tion univer­sal bank has shrunk,” Jain said. “The price of be­ing global has gone up dra­mat­i­cally, and the de­sire to be a global bank has dropped off.”

One-third of global banks will end their global am­bi­tions, with fewer than 10 main­tain­ing a global foot­print, ac­cord­ing to a Novem­ber re­port by con­sul­tancy Roland Berger. In­vest­ment banks will make a fur­ther 40,000 job cuts af­ter the 25,000 al­ready an­nounced, and firms will shift from tac­ti­cal cost re­duc­tions to a “rad­i­cal re­design” of their op­er­a­tions as reg­u­la­tions change, the re­port said.

UBS AG be­came the lat­est Euro­pean bank to scale back when it said it would re­duce fixed-in­come trad­ing last month, elim­i­nat­ing 10,000 jobs. Royal Bank of Scot­land Group Plc said in Jan­uary that it will close or sell its eq­uity and merger- ad­vi­sory di­vi­sions.

“I think by the time we’re done, we’ll have five or six univer­sal banks left stand­ing,” Jain said. “Clearly, Deutsche Bank wants to be one of them.” Jain also said that over-reg­u­la­tion of the bank­ing in­dus­try would lessen the sup­ply of credit, hurt­ing small and medium- sized en­ter­prises.

Deutsche Bank is cut­ting 1,993 staff and com­bin­ing its fixed-in­come and for­eignex­change units. The bank re­ported an un­ex­pected 3 per­cent gain in third-quar­ter profit on Oct. 30, helped by a rally in bond and stock mar­kets that boosted trad­ing. The lender will boost core tier 1 cap­i­tal to at least 8 per­cent of its as­sets weighted by risk un­der the stricter Basel III rules by the end of March, and that ra­tio will rise to more than 10 per­cent two years later, Jain and co-CEO Juer­gen Fitschen said in Septem­ber.

Jain said to­day that he ex­pects the euro re­gion to “re­main in­tact,” and that the risk of a coun­try leav­ing the sin­gle cur­rency had di­min­ished sig­nif­i­cantly af­ter the Euro­pean Cen­tral Bank pledged to sup­port bond mar­kets in July.

“Fis­cal con­sol­i­da­tion has al­ready re­duced deficits in pe­riph­eral coun­tries, progress has been made on la­bor mar­ket and pen­sion re­form, and panEuro­pean con­tain­ment mech­a­nisms, or ’fire­walls,’ have been strength­ened,” he said in copy of the speech given to re­porters. Europe still faces a “very ex­ten­sive struc­tural re­align­ment,” he said. Euro­pean fi­nance min­is­ters to­day failed to agree on a deb­tre­duc­tion pack­age for Greece af­ter bat­tling with the In­ter­na­tional Mone­tary Fund over how to nurse the re­ces­sion- wracked coun­try back to fis­cal health.

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