German lender Deutsche Bank intends to withdraw from the world capital business and cut 18,000 jobs in the next three years. This is part of a larger trend: investment banks are looking at the US, which can sometimes be problematic for Europe, writes Euractiv.
In recent years, Deutsche Bank has put its logo among big players, such as JPMorgan Chase, Goldman Sachs or Citigroup.
The German bank wanted to be at the top of the investment banking. Critics warn that it may have the opposite effect. The interest rates were too low, the profitability was too low, and the challenges for the coming years were too high.
The banking sector is undergoing "historic changes," said Christian Sving, Deutsche Bank's chief executive, making digitalisation a key factor in this regard.
Competition with fine tuning companies, market infrastructure providers and global technology groups continues to grow. Traditional business models are under increasing pressure, analysts write Oliver Weiman.
They predict that the number of banks in Germany will drop today from around 1600 to around 150-130 by 2030. German banks should urgently check the effectiveness of their positioning in Europe.
Deutsche Bank also felt this pressure and decided to carry out a radical restructuring – not more expensive companies in the global stock markets, which point to customers in Germany. The goal is to increase profitability and focus the Bank's "core competencies" on restructuring plans.
The total value of the bank will decline by more than a quarter to 2022, and shareholders will probably have to give up dividends within two years, and 18,000 employees will have to clear their offices.
Complete restructuring of the bank is "a good response to the huge changes and challenges in the financial industry," said Paul Akhleitner, chairman of the Deutsche Bank Supervisory Board.
A solution with a lot of symbolic effect
Investors are skeptical of the bank's turnover. Stock prices dropped by almost 10% since the beginning of the week. Analysts are also skeptical about restructuring: for example, analyst Anke Reinigen of the investment bank RBC told Reuters that the risk that Deutsche Bank's plans would not evolve seems more serious than before.
Competition on the domestic market is tight and is expected to continue to grow in the coming years.
This will lead to major upheavals in the coming years, says Brian Whitmer, chief analyst for Elliot Wave International's European markets.
"People will understand that an important event is the restructuring of Deutsche Bank. Finally, banks around the world are closely interconnected. Deutsche Bank is just the tip of the iceberg, "he adds.
According to Whitmer, the optimism of recent years has also directed investment banks to stock markets, where lenders are not particularly strong, as in the case of Deutsche Bank in the Asian market.
He believes that the number of investment banks will significantly decrease over the next few years. Less, but more specialized players, he predicts. The model of universal banks lives its life.
Move "skillful and talented" in the US
As part of the consolidation of banks, in the future, business is likely to move to the United States, and "skilled and talented" in the banking sector will pull out Europe, according to Thomas Schnar, head of financial services in Germany and Austria at the consulting company Oliver Wyman.
Market shares between European and American banks have changed significantly. Although European banks are generally stable, this challenge should continue to grow for them. Especially for bankers – this is nothing new.
But politically, the transition is not harmless, according to Schnar.
"Every economy needs a functioning financial system. We need to make sure it's the case, "the analyst warns. However, if the products offered by European banks are no longer able to compete with those provided by the US, companies will become increasingly dependent on foreign banks.
"A real new start for Deutsche Bank," commented Deutsche Bank's executive director. According to analysts, this is a symbol of large receivers in the banking industry.