Last week the latest victim of the revolution in the banking industry was clearly Deutsche Bank, which announced a corporate restructuring that will see 15,000 jobs gone in-house, including 6000 contractor roles, as well as the ditching of businesses employing a further 20,000 staff.
The bank will also close onshore operations in 10 countries: Argentina, Chile, Mexico, Peru, Uruguay, Denmark, Finland, Norway, Malta and New Zealand. Add to that a decision to reduce the number of clients in its global markets and corporate and investment bank by approximately 50%. Some 30% of clients produce 80% of revenues in these business divisions, the rest just cost money.
It’s all radical stuff that smacks of a desperate throw of the dice to get back on track after missing the signals it should have spotted years ago.
But a look at the balance sheet reveals the extent of the problems. The bank just reported a €6 billion ($6.56 billion) net loss for the third quarter, on revenue of €7.3 billion, down 7% year-on-year.
New CEO John Cryan says with some understatement:
I do not think that 2016 and 2017 will be strong years.
Deutsche Bank does not have a strategy problem. We know exactly where we want to go. But we have had a grave problem in implementing it.
The answer to that is Strategy 2020. This has four main objectives:
- become simpler and more efficient.
- become less risky.
- become better capitalised.
- become a bank run with “greater discipline and purpose”.
As part of this there’s going to be hefty IT overhaul and a pursuit of digital goals.
The devil’s in the detail of course and to date the bank’s digital strategy has only been sketched in. We’re promised more detail at a later date.
But we might read some clues between the lines of a research note from Thomas-Frank Dapp, a member of the Deutsche Bank research team, on the subject of digitalisation, published the day after the restructuring moves were announced. In this, Dapp says:
The digital debate in the financial sector often gives short shrift to the aspect that banks possess huge amounts of valuable data with the potential to explore new ways of addressing customers. Banks know their customers' behavioural patterns (in terms of payments, consumption, propensity to save and invest, risk aversion, travel preferences, etc.).
Therefore, it makes sense for established banks to apply the same data evaluation strategies as the large internet platforms, so they can also offer their customers convenient, one-stop shopping for as many value-added services relating to their finances as possible.
Deutsche Bank has been putting some of the building blocks in place for several months. In April it announced plans to close 200 branches and invest an additional €1 billion over the next three-to-five years to create "a more digital bank".
The bank has now confirmed some further changes to the tech hierarchy. Kim Hammonds, who currently serves as global CIO and co-head of group technology and operations, will become the firm's chief operating officer. She will be responsible for the re-engineering of the bank's IT and operations.
That’s going to be a hefty ask in its own right. It will involve, for example, getting 45 operating systems across the group down to just four. Across its IT estate, Deutsche Bank currently has an estimated 166 systems in place that have been ‘sun-setted’ by their providers. Those have to be shut down.
Meanwhile there will be a drive to increase virtualization across the board. Currently some 45% of systems are virtualized. The goal is to get that up to 95% by 2020, while getting private cloud adoption up from 20% to 80%.
Hammonds is replacing Henry Ritchotte who’s now charged with setting up a new digital bank for the brand as the bank’s first Chief Digital Officer. Paul Achleitner, chairman of the supervisory board, said last week:
In establishing a digital bank, Henry Ritchotte will assume a key role in refocusing Deutsche Bank.
Ritchsotte’s going to be an important figure to watch in the months to come. It’s already known that the bank’s retail business will see €400-500 million on digital technologies to develop:
a leading advisory-driven, omni-channel proposition for private and commercial clients.
While this buzzword-compliant move may be too little, too late - despite the large scale cuts, there are commentators who think that the bank is being too conservative - Cryan is adamant that the bank has to stick to the plan:
We can’t change the strategy much . . . We have to work with what we are.
Deutsche Bank is one of the very few EU banks to stick with a significant investment banking arm. Most of the loss was attributed to write downs and a tougher legislative framework following the aftermath of the 2008 financial crisis. How Deutsche Bank deals with its IT landscape and its digital transformation will do much to determine how successful or otherwise its corporate restructuring will be. However, the vagueness in what it is saying today do not make for comfortable reading.