The Gulf Today - Business - - SPECIAL REPORT -

FRANK­FURT: Ger­man man­u­fac­turer Voith has been a cus­tomer of Deutsche Bank for more than a cen­tury.

But as the maker of hy­dropower and pa­per plants ex­pands abroad it said it has started to hire other in­ter­na­tional banks where it would have pre­vi­ously con­sid­ered Ger­many’s largest lender.

That could be bad news for Deutsche, which was founded in 1870 to help com­pa­nies with over­seas trade. In April, it said it would re­fo­cus on Ger­man cus­tomers as part of a push to re­store the edge it has lost in the decade since the 2008 fi­nan­cial cri­sis.

The new strat­egy is get­ting a cool re­cep­tion at home. Voith and other Ger­man com­pa­nies such as auto parts maker Bosch have turned to ri­vals and Deutsche’s share of its home mar­ket has di­min­ished.

“Ger­man banks have lost ground com­pared to their in­ter­na­tional com­peti­tors,” said Voith group trea­surer Michael Han­nig. “We had to dif­fer­en­ti­ate and al­lo­cate our busi­ness also across some in­ter­na­tional banks.” Reuters spoke to 10 ex­ec­u­tives of Ger­man com­pa­nies that are cur­rent and for­mer clients of Deutsche who said they did not feel val­ued by the bank. In­ter­views with more than 35 politi­cians, in­vestors and pub­lic of­fi­cials found that many of them are wor­ried about the bank, which has a $1-tril­lion-plus bal­ance sheet.

The bank says clients are happy with its work and it has cut risky in­vest­ments, sim­pli­fied its struc­tures and set­tled most large court cases.

“We are get­ting very good feed­back from our clients,” said Karl von Rohr, Deutsche’s co-deputy chief ex­ec­u­tive of­fi­cer. “What is clear: you can­not be suc­cess­ful if you are not suc­cess­ful in your home mar­ket.” Nev­er­the­less, it cap­tured just un­der 10 per cent of the mar­ket share of in­vest­ment bank­ing fees for merg­ers and takeovers involving Ger­man com­pa­nies so far this year and in 2017, ac­cord­ing to Dealogic.

That is up from a 4 per cent share among global com­peti­tors in 2016 but far be­low a 30 per cent share in 2008, when the cri­sis un­folded.

Deutsche posted a loss that year but Josef Ack­er­mann, chief ex­ec­u­tive at the time, boasted of the bank’s strength as ri­vals turned to their gov­ern­ments for res­cue pack­ages.

The bank’s trad­ing in global stocks and bonds, the forte of its in­vest­ment bank­ing arm, re­bounded and helped it to re­turn to profit in 2009.

But prob­lems were ac­cu­mu­lat­ing. The Euro­pean debt cri­sis fol­lowed the fi­nan­cial cri­sis and Deutsche was fac­ing law­suits for wrong­do­ing in sev­eral op­er­a­tions in­clud­ing in­ter­est-rate bench­mark set­ting and mort­gage-backed se­cu­ri­ties, a mar­ket that has been blamed for trig­ger­ing the 2008 cri­sis.

It has re­ported losses since 2015 and a $7.2 bil­lion US fine last year for its role in the mort­gage mar­ket was a ma­jor blow that spooked clients. From a mar­ket value of 47.4 bil­lion eu­ros at the start of 2008, Deutsche is now worth just 20 bil­lion eu­ros.

Chris­tian Sewing was pro­moted to chief ex­ec­u­tive in April as the bank em­braced its new strat­egy. With a back­ground in risk man­age­ment and re­tail bank­ing, he is the first Ger­man to run the bank as sole CEO since 2002.

He wrote to staff in a May memo out­lin­ing job cuts abroad that Deutsche’s roots in Ger­many were “deep and en­dur­ing”, a mes­sage he un­der­scored when he vis­ited Ger­man chan­cel­lor An­gela Merkel af­ter his ap­point­ment.

Com­pe­ti­tion for or­di­nary savers is stiff be­cause state-backed com­mu­nity sav­ings banks are dom­i­nant.

It is even con­sid­er­ing a new struc­ture to dis­tance volatile in­vest­ment bank­ing from stead­ier, if more mod­est, re­tail busi­ness, Reuters re­ported on Wed­nes­day.

In Ger­many’s cor­po­rate world, the ri­vals are for­eign banks. Deutsche says its for­eign op­er­a­tions are still im­por­tant.

“For Ger­many our global pres­ence is of vi­tal im­por­tance. So we need both: a dom­i­nant role in the home mar­ket and a strong in­ter­na­tional net­work,” said von Rohr.

Mann+hum­mel makes fil­ters for autos and in­dus­try. Chris­tian Aue, group trea­surer, said he dropped Deutsche from its lineup when it ar­ranged 400 mil­lion eu­ros of fi­nance last year. He in­stead chose ING, BNP Paribas and Bank of China.

Deutsche lost out af­ter the pitch­ing process to Mac­quarie when auto sup­plier Bosch asked the Aus­tralian bank to ex­plore op­tions for its pack­ag­ing ma­chin­ery unit, ac­cord­ing to a per­son with knowl­edge of the mat­ter. Deutsche Bank of­fi­cials de­clined to com­ment on spe­cific deals.

In the years run­ning up to 2007, Deutsche was also the big­gest buyer of newly is­sued Ger­man govern­ment debt, ac­cord­ing to the Ger­man Fi­nance Agency. It is now in eighth place with France’s BNP Paribas in the top spot fol­lowed by Ger­man ri­val Com­merzbank.

Deutsche’s chief fi­nan­cial of­fi­cer James von Moltke said the bank is “on a good path to re­build­ing cred­i­bil­ity”.

“We are once again the fullser­vice provider for our cor­po­rate clients in our Ger­man home mar­ket,” he said.

Deutsche’s pub­lic im­age has suf­fered at home. A se­ries on state broad­caster ZDF, “Bad Banks”, about a fic­tional lender ‘Deutsche Global In­vest’ has not helped.

The re­la­tion­ship with politi­cians has also cooled.

Ack­er­mann helped di­rect Merkel’s re­sponse to the 2008 cri­sis and she re­warded him by host­ing the Swiss CEO’S birth­day party.

Sewing’s first meet­ing with Merkel just weeks into his ten­ure was hum­ble, ac­cord­ing to three peo­ple briefed. His mes­sage to her was that the bank is cut­ting costs and “right­siz­ing” its global in­vest­ment bank.

Ger­man of­fi­cials have been wor­ried about Deutsche since 2016. They knew a big fine for its role in the US mort­gage cri­sis was com­ing. At the time, Deutsche and the govern­ment pub­licly played down spec­u­la­tion that it could need state sup­port. Be­hind the scenes, how­ever, ten­sions were run­ning high.

“We looked into the abyss at that time,” said a Ger­man of­fi­cial.

“To bail out an in­sti­tu­tion like Deutsche Bank would not just con­cern one govern­ment. It would con­cern a num­ber.” Of­fi­cials no longer talk of a res­cue but politi­cians across the spec­trum are re­luc­tant to even speak about Deutsche.

“It isn’t pos­i­tive for a politi­cian,” said Bet­tina Stark-watzinger, head of the Bun­destag’s fi­nance com­mit­tee and a pro-busi­ness Free Demo­crat. Her con­stituency in­cludes an af­flu­ent sub­urb of Ger­many’s fi­nan­cial cen­tre Frank­furt.

Deutsche Bank’s share­hold­ers, which in­clude money man­ager Black­rock, buy­out firm Cer­berus are pin­ning their hopes on Sewing.

He was born in 1970 in Buende, a town in the in­dus­trial heart­land of north­west­ern Ger­many known for its cigars.

Buende’s econ­omy has been boom­ing the past cou­ple of years, the city’s mayor Wolfgang Koch said. He was sur­prised when Deutsche closed its lo­cal branch last year to save costs.

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