Delivering value in a changing environment

Q: How would you define the current environment and what do you see for 2012? 

John Ball: I think 2011 was a very challenging year for all, primarily because of all the issues that we are now familiar with in Europe. This year has probably started out a little better than many pundits expected. For example, we’ve seen some fairly positive indicators coming out of the US.

But when we talk with clients, there is still a great deal of concern and there is still a great deal of vigilance out there in terms of how they navigate these waters. Investment budgets are obviously still very constrained and banks, therefore, are having to make difficult decisions around the strategy and direction of their business.

Q: What are the major topics for the industry as a whole?

Marcus Sehr: Three topics dominate: the European sovereign debt crisis and the future of the euro, credit tightening as banks respond to Basel 2.5 requirements and, finally, the increased regulatory demands placed on the industry, such as Dodd-Frank and Fatca [the Foreign Account Tax Compliance Act].

Q: Can you give an overview of what the industry looks like at the moment?

Mr Sehr: The jury is still out on some of the topics and this is not the time for huge budgets and investments. Since 2008, because of uncertainty in the market, we have seen that banks haven’t started to invest and haven’t put so much into the investment portfolio. So, to answer your question, many banks are still in 'wait and see' mode.

Q: What does this mean for cash management specifically?

Mr Sehr: Cash management is no different to any other product, so you could certainly live through a period of one or two investment cycles without heavily investing into a product. But at some point the infrastructure just becomes outdated and people have to focus, once more, on investment and innovation in order to stay in the market and remain committed to the clients. Sometimes it is like driving a car: sooner or later you have to go to the garage or even buy a new one.

Q: What are you hearing from your clients? Are there any geographical differences?

Mr Ball: I think the themes we hear from clients are very similar to what Marcus has outlined. In terms of the clients in different regions, we see a consistency in the issues they are facing. It does not matter if you are talking to clients in Asia, the Americas or Europe – these are all global issues they are dealing with. There may be a difference in weighting among the topics, but I guarantee they are on every discussion list.

China is obviously a key topic of discussion for Asian clients because a larger percentage of their business has China linkage and dependency. Everybody is interested in the Chinese economy and what is happening with the internationalisation of the renminbi.

Q: Considering the challenging environment transaction banks find themselves in, how can banks respond to clients in these changing times?

Mr Sehr: Budgets are still constrained so banks have to focus on strategy. They really have to closely examine what they are doing and what they are not doing. I think in these times it is even more important to decide what you are not doing. Banks have to make choices; they have to decide whether they make investments themselves or whether they partner with somebody who will do the 'heavy lifting' for them.

Q: How has the focus on transaction banks changed in recent times?

Mr Ball: I think the first point to highlight is how many banks have actually formed transaction banks over the past two or three years. We have seen a great growth in that area, not just among global players, but among regional banks and domestic banks, although those regional and domestic banks frequently have to partner with global banks in order to drive their business.

Why has this happened? Simply because this is a great, stable business. It is fee-generating and it generates liquidity. Naturally that has been the kind of stability that banks have wanted in this period of high uncertainty and financial crisis. Partnering with those transaction banks at a regional level or with domestic institutions has become a key part of our business and something that we are very tuned in to. 

The transaction banking business demands scale and efficiency. What we are seeing is that the type of payments, the profile of payments and the regularity of payments is starting to change. And it is a little bit more unpredictable than it ever was.

It is therefore putting demands on institutions in terms of their capacity to make payments at different times of the day, for instance. It is also putting pressure on banks around efficiency so they essentially have to do more with less.

Q: How can banks differentiate themselves?

Mr Ball: Banks can differentiate themselves on their product capability, on their service standards and on price. Also, I think people make an enormous difference because they are at the centre of our business. I would like to think that at Deutsche Bank we differentiate ourselves based on the quality of our people. Many have been with Deutsche Bank for a long time, but we also have a constant sprinkling of new talent that we bring into the organisation, which is essential for any organisation to develop and grow.

Q: How can banks distinguish themselves on the product suite?

Mr Sehr: If you look at our product suite, we differentiate ourselves from the competition in the way that we are very harmonised. For example, if you are buying dollar clearing services or euro clearing services from us, you will see that we have a harmonised product suite and this allows our clients’ operations departments to really streamline their operations. We believe this is a meaningful differentiator which provides additional value to our clients.

Q: How do you differentiate yourselves from the client perspective?

Mr Ball: Clients are obviously at the very heart of everything that we do and we try to stay as close to clients as possible. We have regular discussions with clients, and a lot of our successful product launches have been on the back of conversations that originated with clients, where we gained a deeper understanding of that client’s day-to-day business and the challenges they face.

I think at Deutsche Bank we recognise that a siloed approach served us well for a number of years, but we are now seeing that the demands of the marketplace are starting to blur those product definitions. In other words, you cannot necessarily box a client into an individual product. Frequently, the client is looking for more than that. Those banks that connect the dots will be the ones that will be successful.

Q: How do you differentiate yourselves with regards to organisational structure? Can you explain a little about the structural changes that you have recently made?

Mr Ball: At Deutsche Bank, within the financial institutions [FI] side of our global transaction bank, we previously operated through four fairly distinct vertical businesses: cash management, custody, global debt and global equities. Those businesses were very successful in their own right, but we have now found a better way to link these businesses for the benefit of our clients. 

What we have now done is retained the verticals, but essentially split the verticals into two pieces: an FI sales piece responsible for clients and the relationships along with revenues that are generated; and then there is the product piece, which is responsible for the strategy, P&L [profit and loss], the day-to-day business and client service, which is obviously critical.

Within the new organisation, we are also charged with working across those vertical businesses so that we ensure connectivity and ultimately, deepen our client relationships. I think we should stress that we are not trying to create a generalist sales force here; instead we are maintaining product specialisation, and what we are now doing is ensuring we have the connectivity that brings a broader solution to the client.