Transaction banking fall shows extent of Deutsche’s cutbacks

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By:
Mark Baker
Published on:

A bad year as the bank continued to rejig its client base, but management predicts GTB revenues will improve from the second quarter.

The full-year 2017 net loss of €497 million that Deutsche Bank announced on Friday had been expected, after its warning on January 5 that it would be booking a €1.4 billion charge in relation to recent US tax reforms.

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James von Moltke,
Deutsche

However, there was another figure that stood out as evidence of the extent to which the bank’s moves to cut clients have shrunk core businesses.

The bank has in recent times been focusing on cutting those clients with whom it cannot make money across multiple products and geographical areas, in favour of those where it can do just that.

In the short-term that means some painful reductions, and over the past year these have begun to feed through to what is now its corporate and investment bank’s key franchise – global transaction banking (GTB).

Deutsche’s GTB revenues – a franchise prized by those banks that engage in it for its consistency – saw a full-year decline of 10.8%. Of the other big transaction banks that have so far reported, none has seen a year-on-year fall.

Citi’s treasury and trade solutions business was up 7.3%, Bank of America Merrill Lynch’s global transaction services unit was up 11.4% and JPMorgan’s treasury services line was up 14.5%.

It’s a trend that started the previous year, although less notably. Deutsche’s revenues fell by 4% in 2016 compared with 2015, with the US firms notching up single-digit increases at that time.

The bank was also toppled from the top of Euromoney’s annual trade finance survey in January, displaced by HSBC, followed by UniCredit. Deutsche did, however, secure top rankings in Western Europe and Asia-Pacific.

Pressure

Reporting its 2017 numbers on Friday, Deutsche said that the fall in GTB revenues reflected exchange-rate movements, but also its decisions “to reduce the country and client perimeter”, as well as continued margin pressure.

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In its breakdown of the fourth-quarter 2017 figures, where Deutsche saw a year-on-year fall of 12% in GTB, the bank said that cash-management revenues were slightly lower, reflecting the impact of client, country and product exits in 2016, and adverse FX movements.

However, it added that this had been largely offset by the benefits of rate increases in the US.

Trust, agency and securities services, which Deutsche bundles into its GTB line – at JPM and Citi, for instance, securities services are broken out separately – were slightly lower, again as a result of FX. Absent that, it would have been flat.

But trade revenues were lower because of margin pressures, the bank said.

Chief financial officer James von Moltke told analysts that the bank had already noted a fall in GTB revenues in the last two quarters – and he conceded that the last few quarters’ performance had been weaker than expected. He thought that the first quarter of 2018 would also be affected by the same factors.

However, CEO John Cryan reckons that there is a brighter future for the business. Speaking in Frankfurt on Friday, he said that the bank had won new mandates in the second half of 2017, which should show up in the revenue side soon.

Von Moltke said that the improvement would start to be seen from the second quarter of the year.