Will Deutsche just spin off Postbank or its entire retail operation? Either way, there are mounting fears of job losses. They could be part of a major overhaul Germany’s largest bank is expected to announce soon.
Analysts and banking experts have been busy speculating on the future of Germany’s largest financial institution, Deutsche Bank. The bank wants to reinvent itself and, to that end, its management is expected to submit a new strategy to the bank’s supervisory board on Friday.
Speculation is focused on the future of Postbank, which has been part of the group since 2010. According to reports, Deutsche has narrowed its options down to two. One is to split the group into two separate legal entities, with one focusing on investment banking and the other dealing with retail businesses. The second option is to spin off Postbank.
Waiting for the big hit
“I believe investors are expecting the board to provide more clarity on the new strategy, and that means they would like to see more decisions come out of the board meeting on Friday than just the sale of Postbank,” said Hans-Peter Burghof, a banking expert at the University of Hohenheim.
Burghof told DW that the goal of the new strategy therefore has to be to surprise the capital markets and show that the bank’s management can produce results.”
The current uncertainty, however, means that employees at Postbank – numbering some 14,800 – are increasingly concerned about job security, particularly after recent wage negotiations came to a standstill, and employees began a strike on April 20.
Strike at Postbank
Trade union Verdi is demanding a 5.5-percent payrise for the bank’s employees. The dispute, however, is chiefly about better protection from dismissal for all of Postbank’s staff.
Due to the discussions over strategy at Deutsche, the issue of protection from dismissals gained prominence during the collective bargaining round.
However, many of the Postbank employees are already civil servants with permanent contracts who cannot be fired. But the bank has repeatedly said that it cannot exclude the possibility of redundancies, given the continuing pressure on margins and structural changes in the industry.
Experts say offering employees protection against dismissals would reduce the price that any interested buyer would be willing to muster. Spain’s Santander group and France’s BNP Paribas are seen as potential buyers of Postbank. An acquisition would give either buyer the opportunity to expand their presence in Germany.
Sell at a loss?
It is not clear yet how much the sale of Postbank could net Deutsche Bank. German business weekly “Wirtschaftswoche” estimates Deutsche Bank could pocket 6 billion euros by selling its subsidiary – exactly the same amount it paid for Postbank five years ago.
But insiders put the figure at a more modest 4 billion euros on account of the bank’s portfolio of risky assets, which amount to some 11 billion euros. “It will be difficult to sell Postbank without offering a large discount on its book value,” writes German daily “Süddeutsche Zeitung,” citing an unnamed investment banker.
Nevertheless, it remains to be seen what decision Deutsche Bank’s management and its supervisory board will make with regard to Postbank, said analyst Burghof. “As a professor in banking, I believe a bank should be diversified and capable of offering a wide variety of services,” he underlined. “A bank must also be able to deal with the tension between different corporate cultures,” the expert stressed.
If the board decides to split Deutsche Bank, it would be a radical decision to slim down its operations, which could boost earnings. At present, as a universal bank, Deutsche offers investment and retail banking as well as wealth management. Retail clients are offered services by both its Deutsche Bank and its Postbank brands.
Big changes are therefore expected in retail banking. But even if Postbank were to be hived off, there could still be more job cuts at Deutsche Bank’s retail banking operations. The new strategy paper is believed to contain proposals envisaging the closure of up to a third of the 700 branches the bank operates in Germany, with potentially thousands of job losses.
Investment banking won’t be spared
The restructuring is also expected to affect Deutsche’s investment banking division, which could see bigger cuts than originally expected. The division’s business volume could be cut by up to 200 billion euros, reports say. The division has to be downsized as many of its activities consume too much capital, according to news agency Reuters, which cited soucres in financial circles.
Deutsche, however, remains mum on all the speculation surrounding the bank. A spokesperson reiterated that the results of the ongoing strategy debate will be published before the end of June. The bank’s management will then also have to focus on how to get its people back on board.
“This is the aspect I am most anxious about,” says banking expert Burghof. He wonders what Deutsche will do to motivate staff and get them to commit to the bank after a period of high uncertainty.
“The culture change the bank wants to achieve means that Deutsche has to be seen as a long-term and reliable partner. And it is not going to achieve that with short-term strategy changes.”