The financial crisis reinforced the need for robust risk-management in trade finance, and compelled banks to gain a deeper understanding of client requirements. On both fronts, Deutsche Bank has made inroads in recent years, in part thanks to its unique internal structure and growth strategy.
For 2014, Deutsche Bank’s global transaction banking (GTB) division reported revenues of €4.1 billion, an increase of €77 million on the previous year, a 2% year-on-year rise, despite the low interest-rate environment.
The bank is keeping its focus on working with its client base to provide specialized solutions, rather than having a principal focus on scale by client numbers or regions.
| If you don’t understand cash management, you shouldn’t go into it|
“We don’t aspire to be the largest absolute provider in the market as we target to remain agile, responsive and very close to our clients,” says Spiegel. “We want to be perceived as the cleverest player in this business. We differentiate through our service, providing a gold standard to our clients.”
This strategy has paid off, and the bank is winning the business of global corporates. Through its approach to innovation, the bank has established cash-management programmes with a number of international companies, including PayPal.
Deutsche launched the accounts receivable manager for Sepa solution in 2013 to streamline PayPal’s euro receivables reconciliation into a single automated process. It allows PayPal to use IBAN numbers for its customers, rather than having to match up its existing client data.
The bank has ensured the business is working efficiently through keeping certain areas of the transaction banking divisions separate, but maintaining close co-operation.
“The trade finance and cash-management businesses are very different, but it makes sense to have them under the same management,” Spiegel says of his role. “Underneath the regional managers we have separate heads for trade finance and for cash management. They are experts in their own fields, but are closely connected.”
The decision to run the business in this way appears different to some banks that are looking to merge their functions. Spiegel says the bank found that its most complex clients did not want such a merger. For the smaller companies, creating efficiencies between products has substantial time and financial benefits, as Spiegel says: “To put it bluntly, they do not want to have to pay for three different people visiting.”
He adds: “We have kept separate subject-matter experts, but they work closely to avoid silo thinking. The teams collaborate with colleagues in FX, origination and the emerging markets. They are all part of different business lines, but their operations are closely linked.”
Spiegel explains the operations between the FX and GTB teams are virtually a joint venture. The decision was made internally for the divisions not to compete, unlike other institutions where the transaction bank will buy in the services of the FX department.
“The bank has been investing in training, in technology and in our people," he says. "Through investing in staff we have been able to focus on the analytics and get a deeper understanding of client requirements in order to provide value-added solutions.”
Deutsche has developed training programmes to ensure staff understand how various areas are interconnected.
“Understanding risk management and working-capital management are important elements when dealing with liquidity," says Spiegel. "This is why we ran 500 colleagues through a dedicated credit risk and working-capital training programme in 2014; we will do the same with another 250 colleagues this year.
“It has a lot to do with the successful functioning of cash management. Risk and working-capital management are not just trade finance tools, but a skill to effectively deal with our clients’ working-capital challenges.”
Spiegel, who took on the role in 2011, is pragmatic in his attitudes to how cash-management programmes need to be run.
He says: “If you don’t understand cash management, you shouldn’t go into it. Banks need to have the technical and product capabilities and need to understand the challenges in the market to offer tailored solutions. It is a very competitive market. The corporates will only see success in the long run when they are given value-added propositions.”
Trade finance remains a key area requiring risk-mitigation services and advice.
Spiegel says: “The financial crisis has led to a renaissance of trade finance. The letter of credit is not going to die. Even with the BPO or other new developments, the need for there to be a mechanism to reduce risk has not diminished.”