Last month, Deutsche Bank announced the acquisition, with Sal Oppenheim, of a 14% stake of China’s Huaxia Bank for €272m. A day later came the revelation that it was launching a retail banking operation in India, involving 400 staff in eight cities.
And now Deutsche is a front-runner in the bidding war for a 61.9% stake in Romania’s Banca Comerciala Romana (BCR), the ninth largest bank by Tier 1 capital in central and eastern Europe and, aside from Hungary’s OTP Bank, the only large bank in central Europe that is not already owned, at least partially, by a foreign bank. Investment bankers estimate that bids could reach €3.5bn, valuing BCR at €5.6bn.
Many have raised an eyebrow over this sudden push into retail after Deutsche has spent the past seven years or so transforming itself into an international investment banking powerhouse – a magic trick that it has performed pretty well. CEO Josef Ackermann and his fastest rising lieutenants hail from investment banking, and the corporate and investment bank – which contributed 62% of group pre-tax profit in H1 2005 – lies at the heart of the business. By comparison, the private clients and asset management business and a subdivision, private and business clients, delivered 27% and 18% respectively.
Conspicuous absence
Until relatively recently, the bank was questioning whether it should have a serious retail presence at all. The word ‘retail’ has been almost expunged from Deutsche’s vocabulary – it is certainly absent from its Q2 interim report. Retail customers have been rebranded “private clients”, and analysts say that Deutsche’s retail targets are best described as “mass market affluent”.
This is about to change. The three deals, two signed and sealed and one potentially in the offing, signal a significant shift in Deutsche’s strategy. Although Deutsche will surely argue that, in addition to its German network, its 240 branches in Italy and 255 in Spain, for example, make it a major retail presence, it is only with these latest acquisitions that the world will believe that retail banking is really a central plank of its group strategy. It may have 800-odd branches in Germany but the bank only commands a 6.2% market share of the fragmented domestic market.
Some are surprised therefore that Deutsche’s forays are all on foreign soil. Some critics have sniped that just as charity begins at home, so should the bank’s retail client base. The German market cries out for consolidation and it is still a growth market: PA Consulting expects German retail financial services to grow by 17.1% by 2008.
But, like others, Deutsche clearly believes that bargains are few and far between in Germany. China, India and maybe Romania, on the other hand, constitute relatively low-cost entries into markets with the potential for very high growth. So, such moves are not as surprising as they initially seem.
