Deutsche Bank has continued to invest in its US operations throughout the coronavirus crisis and will not lose out on resources to its European heartland, regional chief executive Christiana Riley told the Financial Times.
The German lender has increased capital to its investment banking division, whose largest operations are in the US, in each of the last three months to keep up with clients’ demand for extra financing and trading.
The allocation comes despite a pandemic that has put further pressure on Deutsche’s already-stretched balance sheet and despite scepticism from shareholders about the wisdom of keeping a US operation that is still not covering its cost of capital.
“We don’t think about this as a zero-sum game, [that] you’re either supporting small businesses and retail customers in Germany or supporting our US corporate and institutional clients,” said Ms Riley, who is on Deutsche’s nine-person management board.
The US division would not lose out to a home-country bias that banks often display during a crisis, as already evidenced by US banks pulling back from lending to European corporates.
A perception of a Germany-versus-US divide is a “a very simplistic view”, she added.
The underperformance of the US division and the historical volatility of the global investment bank have dragged down the market value of the company, in many investors opinion, and it has also tussled with regulators in the US. In March, the Federal Reserve rebuked the bank for failing to address a litany of concerns at its US operations, which it continues to describe as being in a “troubled condition”.
Ms Riley declined to comment on relations with regulators.
Some investors expected the US business to be axed entirely under a sweeping restructuring announced last summer.
The US part of that plan, which included unspecified thousands of job losses as the bank closed its global equity trading division, is “fully on track”, Ms Riley said.
“The US business needs to be earning more than its cost of capital,” she said. “So that’s what we’re working toward . . . The core business is close to that.”
Ms Riley said US job cuts had been completed ahead of target. Still, the bank has not guaranteed there will be no cuts through the Covid crisis, as most of its US peers have. “We don’t need to do that and our investors wouldn’t thank us for it,” Ms Riley said.
The pandemic has added pressure on Deutsche Bank’s balance sheet as companies clamour for more credit while looming loan losses take a chunk out of the bank’s capital.
Mark Fedorcik, the New York-based head of Deutsche’s investment bank, said his division was performing strongly and there was “appetite to deploy more capital to support our clients” given market conditions.
“We absolutely did that in March, April and May,” he said.
Deutsche told investors in December that there would be almost no growth in the investment bank’s capital until 2022, but that commitment was overwritten by the bank’s April decision to ease one of its key capital targets so it could deploy more capital across its business in light of the Covid crisis.
Mr Fedorcik, whose division increased profits by 18 per cent in the first quarter, said the investment bank was enjoying “very strong” market conditions in fixed income, currencies and commodities trading and was also looking at new lending to private equity, although that market is “slow” for now.
Deutsche has previously boasted of its status as the number one lender in US commercial real estate, “Everyone who lends in commercial real estate is obviously suffering some setbacks, but the size of our portfolio . . . is not so big that it’s going to overwhelm us and we feel very confident about that,” Mr Fedorcik said.
Mr Fedorcik said his investment bankers had been making as many as 50 per cent more client calls than a year ago now that they were working from home.
Ms Riley said Deutsche’s 2021 plans to move from its 60 Wall Street office to a new site at Columbus Circle remained on track, but that the bank is “thinking about re-engineering space in certain areas” to provide more collaborative work areas. People are more likely to come to the office to work together in a post-Covid era, she said.
Deutsche is repopulating its US offices on a phased basis, as work from home restrictions ease in various cities. In New York, the bank will evaluate the situation for three weeks after the city’s stay home order lifted this week.
Returning will be optional and protections are in place including temperature screening and masks “wherever six feet of distance can’t be maintained in public spaces in elevators in the cafeteria”, Ms Riley said.
Additional reporting by Olaf Storbeck in Frankfurt