Improving culture is among the “most difficult” tasks large banks face, particularly as regulators globally force lenders to fund industry bailouts or pay for government guarantees.
That is the view of Deutsche Bank’s top executive in the Asia-Pacific region, Werner Steinmueller. His comments come as Australian banks grapple with the federal government’s bank levy and South Australia’s proposed tax on the industry.
“Fixing culture is one of the most difficult things to achieve. You have seen what Deutsche has done. We changed our management of 18 positions. Except for two or three, [there] are new people or people who were not involved in senior positions before,” Mr Steinmueller told The Australian Financial Review.
He was in Australia last week to help oversee a changing of the guard at the helm of its business here from long-standing lieutenant Michael Ormaechea to former Goldman Sachs partner Anthony Miller.
Mr Steinmueller, also a member of Deutsche’s global management board, said the bank had a new brand campaign ‘PositiveImpact,’ as it navigated a cultural change within its ranks.
“All these things take time and we have to continue to work on it, to look much more at what is the reason of financing. Is it really trade related? Is it helping our economy and society?
“We are considering these elements.”
Deutsche is attempting to get on a firmer footing after several difficult years which resulted in the firm raising €8 billion ($11.9 billion) earlier in 2017.
The bank has also reached a $US7.2 billion mortgage-bond settlement with the US government and has had to pay separate fines to the Federal Reserve related to inadequate protections against money laundering.
Mr Steinmueller said while Australia’s federal government is implementing a bank tax, lenders in Europe already contributed capital to an industry rescue fund.
“I like this [fund] solution much more than a tax because it’s a specific focus for restructuring,” he said.
“We cannot assume any more for implied guarantee of a federal public government, or Germany or the European Commission. And for that reason they created this fund. The reaction of Australia is basically to do it through a tax system.
“All of this [European measures] would be roughly about five basis points on our liabilities. So this cost is very similar.”
Australia’s bank tax will be levied at 6 basis points on some of their liabilities.
Mr Ormaechea said he struggled to understand the logic behind South Australia’s bank tax. “It is completely different because the states don’t assume any of the liabilities.”
The pair said Deutsche apportioned some of the cost of the European rescue fund to its Australian operations.
New Deutsche Australia New Zealand chief Anthony Miller, who begins in the role on Monday, said he would build on the existing business rather than instituting sweeping change,
“I have seen up close Deutsche in action and then from numerous discussions over that period of time with clients, having heard about what Deutsche provided, in my mind it is absolutely a terrific, formidable platform,” he said.
“I’m very excited to able to join the team and to push forward with some of the things I think we can do more of.”
Mr Miller is optimistic about the outlook for local deals and isn’t perturbed by any threat that capital curbs in China pose to mergers and acquisitions activity in Australia.
“It actually presents a bit more of an opportunity for institutions such as Deutsche,” he said, noting that investment banks would need to be “more thoughtful” about how they assisted Chinese acquirers.
“So for an institution like Deutsche it’s perfectly poised to assist in adding value to that capital outflow now that there is less of it.”
So far this year, Deutsche ranks in third place for announced Australian mergers and acquisitions working on deals worth $US9.6 billion, according to Dealogic. That was buoyed by the bank’s role in the NSW government’s sale of a majority stake in Endeavour Energy and advising on Rio Tinto’s sale of Coal & Allied Industries to Yancoal.
In a quiet year for equity capital markets, Deutsche sits outside the top 10 and in debt capital markets the firm is eighth.
During his career at Goldman, Mr Miller worked on a long list of financing deals across areas taking in equity and equity-linked transactions, debt and derivative solutions, and commodity linked deals.
The list of clients across the region included Industrial and Commercial Bank of China, Oil Search Insurance Australia Group, National Australia Bank, Macquarie Group and Origin Energy.
Australia is one of Deutsche’s four key markets in the APAC region, the others being India, Japan and Greater China.
Mr Steinmueller is upbeat on prospects for transaction flow across the region and shrugs off rampant poaching this year of Deutsche staff by other banks in APAC, including UBS.
“The deal pipeline in Asia is very strong in all areas. We have had positive momentum and a strengthening of a capital base. I am really happy with the performance in Asia,” he said.
“The attrition rate is exactly the same like last year,” Mr Steinmueller added. Deutsche imposed a freeze on bonus payments this year for most staff but plans are for bonuses to resume as normal in early 2018.
Globally, Deutsche also needs to traverse the implications of Brexit and any roll back by the Trump administration of banking regulations.
“Overall in the banking industry is extremely regulated around the world,” Mr Steinmueller said. He also noted that Deutsche’s partial asset management spin-off was a work in progress and a “clear part” of the bank’s strategic plan.
Mr Ormaechea said Deutsche was still working through the implications of Mifid2 regulations for this part of the world. They essentially unbundle research and execution fees for investment banks operating in Europe.
“The implications for Mifid for banks is materially a work in progress because it’s still unclear with all regulators as to what is the extension of Mifid outside of Europe in terms of pre and post trade requirements.”
“In the continuing months and for the remainder of the year we expect to be profitable,” Mr Steinmueller said.
“With the growth momentum we have in Asia it’s pretty clear the Asian market is very important for our growth strategy going forward.”