What began as an ambitious goal has eventually led Deutsche Bank AG to financial difficulties. The banking industry is dominated by large institutions with strong histories.
Deutsche Bank wanted to take a large bite out of the market share that banks such as The Goldman Sachs Group Inc. and Morgan Stanley held. However, Deutsche Bank’s aggressive approach has led the company to many financial scandals and risky-positions.
Deutsche Bank had a loss of 5.3 billion euros or $5.8 in 2019. 5.3 billion euros is a massive loss, as revenue for the bank was only 23.17 billion euros for fiscal year 2019.
From these numbers alone, it might seem as Deutsche Bank is doomed for failure. However, further inspection shows that Deutsche Bank might actually be in a good position.
The massive loss was mainly because of expenses from the overhaul that Deutsche Bank announced earlier in 2019.
According to their 2019 financial results, there were two main sources for the loss. First, there were 3 billion euros in pre-tax charges that are related to the transformation.
For example, cutting 4,000 jobs in 2019 required the bank to pay severance expenses. The second source was a 2.8 billion-euro adjustment in deferred tax asset valuation.
This means that Deutsche Bank needed to reduce the value of its assets by a great extent.
In this case, many can argue that these expenses led to short term losses that can overshadow the potential long-term gains.
The market and financial data seem to support this point of view. The bank’s stock price has had a 20% gain since the beginning of the year and continues to slowly rise showing that investors believe the bank still has great potential.
Furthermore, according to their financial statements, Deutsche Bank had 13% increase in investment banking revenue and 31% year-over-year fourth quarter increase in asset management revenue.
Therefore, the losses are only short-term and Deutsche Bank has shown some excellent possibilities for the future.
One way to achieve success going forward for Deutsche Bank is to maintain the goals that it already had but approach these goals differently.
The United States is a major geography for investment banking that Deutsche Bank should not give up on. It plans to keep tackling this sector but in a different manner. This is to be done by reducing risk and growing at a slower pace.
The fact that the banks were able to grow investment banking revenue shows that it has potential but just needs time to adjust. It has incurred 70% of the total restructuring costs planned between 2019 and 2022.
Revenue will continue to grow and the one-time expenses will decline, which will lead to better bottom line numbers.
The international banking industry is led by complicated institutions. Banks such as JPMorgan Chase & Co. and Bank of America Corp. operate a variety of different divisions including retail, commercial and investment banking.
In order to compete in such an environment, banks need to be able to have a global footprint and excellent image. Furthermore, negative interest rates in Europe do more damage.
To succeed, banks need to have significant assets under management and continue to provide excellent service in all areas.
Deutsche Bank’s commitment to the United States market and new approach makes the company a very powerful rival in the industry.
If Deutsche Bank can continue to grow and its overhaul plan is executed properly, it can be a major player in the industry.
As the competition increases through the globalization of bulge bracket banks and rise of boutique banks, Deutsche Bank’s recovery can mean even more competition.
