Deutsche Bank AG’s operations in the Americas, particularly in the United States, are expected to continue on an upward trajectory over the coming year, even as markets normalize and political and regulatory oversight persists, the reporters said. analysts.
The German lender is in the midst of a massive restructuring that aims to cut down on underperforming businesses and locations. The U.S. unit had underperformed in previous years due to a lack of focus, but remains a “essentialpart of the group, Christiana Riley, CEO for the Americas, said in January 2020.
More than two years after the start of the overhaul of the group’s CEO, Christian Sewing, the performance of the Americas has started to recover. According to data from S&P Global Market Intelligence, Deutsche Bank‘s total net revenue from the Americas reached 4.93 billion euros in 2020, up from 4.55 billion euros the previous year. The year-over-year growth reversed three consecutive years of decline since 2016, when the region recorded â¬ 6.83 billion in revenue.
âWe have left unprofitable activities, reduced our customer scope to focus on customer relationships rather than rankings, and we no longer take excessive risks. [in] exactly what we wanted: increased stability and predictability in our returns, âRiley said in a virtual presentation to investors in December 2020.
The region contributed 21% of the group’s operating profit in 2020, up from 20% in 2019. However, this still lags behind its European peers: Swiss bank UBS Group AG generated 40% of its profit operating in 2020 from the Americas and Barclays PLC. and Credit Suisse Group AG both recorded 34% of operating profit in the region.
The Americas are Deutsche Bank’s second-largest source of revenue after Germany. The bulk of revenue is generated by the U.S. investment bank, which accounted for 60% of regional revenue in the first nine months of 2020, according to Riley.
“The evolution of the investment banking platform in the Americas over the past 18 months has been remarkable. It has given us a solid platform andâ¦ we are seeing a resurgence in client engagement.” Riley said during the presentation.
The pursuit of stability
An expected slowdown in trade in the second half of 2021, as economies gradually recover from a coronavirus-induced slowdown, has raised concerns about Deutsche Bank’s ability to maintain its strong bank performance. ‘investment. CFRA analysts have warned that the bank faces a tough income outlook this year amid trading normalization and subdued economic activity as well as the impact of lower interest rates for longer.
With business in the Americas relying heavily on investment banking in the United States, any slowdown in rate and foreign exchange business would also weaken region’s earnings, according to Giles Edwards, industry manager at S&P Global Ratings for institutions European financial institutions. A key area to watch is whether the bank can provide the commercial stability and competitive position it has lacked in recent years by increasing the income of private and corporate banks, outside of investment banking, a- he added.
Christiana Riley, CEO of Deutsche Bank for the Americas, speaks during a press conference for the bank’s 2019 annual results.
According to Riley, the region expects global financial demand to increase after COVID-19 “as businesses recover and renew their investment programs.” There has been a growing demand for green and sustainable finance, particularly in the United States, where the Biden administration has made sustainability one of its key priorities.
âWe also expect revenue growth from our controlled expansion of credit to new customers in targeted industries, particularly in [the] healthcare, industry, consumer and technology, media and telecommunications, âsaid the leader.
Christian van Beek, director of financial institutions at Scope Ratings, said the The execution of the group’s strategy in the United States so far “indicates a more stable regional performance and therefore less dependent on market sentiment.”
“Focusing on strengths appears to be a viable strategy” for the bank, especially given the strength of its peers in the United States, according to Sonja FÃ¶rster, Vice President of Credit Ratings at DBRS Morningstar, but exiting risky businesses such as blue chip finance would also reduce the likelihood of outsized losses.
FÃ¶rster added that âoverall, the bank needs financial flexibility to take advantage of growth opportunities, and we note that the recent increase in capital ratios has enabled the bank to grow its balance sheet and take more of risks. However, given the limited profitability relative to its US peers, we believe growth will remain somewhat limited. “
Watch out for the watchdog
Deutsche Bank’s US operations are not without problems. The bank’s business relationship with former President Donald Trump is part of a congressional investigation, and more recently the Federal Reserve has reportedly warned of potential fines if it did not improve its shortcomings in the fight against the bank. money laundering. The bank has since announced that it will reorganize its structure in order to strengthen its efforts to fight financial crime.
While Deutsche Bank has “focused too little in the past” on its anti-financial crime controls and needs to tackle this area “with more force”, this should not significantly affect performance in the region, according to FÃ¶rster . Regulatory issues in the United States “are really not that different from those in Europe,” Edwards added.
Riley said in his presentation that the region will seek to reduce infrastructure costs while maintaining investments in technology and controls and continuing to favor investment banking. She added that she expects to see significant savings from automation.
The region’s investment bank topped the group’s return on tangible equity two years ahead, Riley said, adding that a ROTE of around 11% is expected in what will likely be “times. more standardized “in 2022.
“[Our] The story isn’t about the shrinking, âRiley said. âOn the contrary, our activity in the region, now correctly targeted, has a clear growth trajectory.