In June, Deutsche Bank announced the latest step in its restructuring: the creation of a new unit, its International Private Bank. This now becomes a prominent part of the larger private bank division, dominated by retail banking in Germany, that is one of the four pillars of the group, alongside the corporate bank, the investment bank and asset management.
The new unit combines the old private and commercial business international, which serves affluent retail customers and small and medium-sized enterprises mainly in Italy, Spain, Belgium and India, together with the global wealth management business, which covers family offices and entrepreneurs in Europe, the Middle East and Africa, Asia and to a lesser extent the US.
The move underlines the bank’s determination to grow in wealth management where it is in the middle of an ambitious investment drive – rare within the industry and unusual amid Deutsche’s own cost cutting – that it announced last July would see some 300 relationship managers recruited over three years.
The head of the new International Private Bank is Claudio de Sanctis, previously head of global wealth management at Deutsche.
De Sanctis has risen rapidly since arriving to run European wealth management at the end of 2018 from Credit Suisse.
There he had been a close ally of Iqbal Khan during the drive to grow revenues in international wealth management through initiatives such as the International Trading Solutions business, which had the Swiss bank’s markets traders that deal with institutional investors design structured investment products for ultra-high net-worth (UHNW) private clients.
Other banks have since followed this model.
Claudio de Sanctis,
De Sanctis says: “Some of the best people on the markets side at my previous employer have come to Deutsche Bank. So, when I arrived, there was a warm welcome from the markets side, which had seen what we had done there and hoped we would replicate it here.”
Perhaps more important has been the hiring of those relationship managers in the US, Europe, Middle East and Asia.
“We have effected the largest shift of talent in the wealth management industry of the last 10 years,” de Sanctis says, “hiring from top competitors at market rates and bringing in the best relationship managers dedicated to that entrepreneurial client segment that is Deutsche Bank’s focus.”
The bank recently recruited Sofia Sool to cover emerging Europe clients from UBS, where she had run the UHNW emerging markets team; Davide Lombardo from JPMorgan; and relationship management teams from JPMorgan in Switzerland and Credit Suisse in Italy.
In the last 12 months, it has brought in roughly 150 client-facing staff.
“That recruitment is not over. It still continues,” de Sanctis says. “But we are already starting to see a swift translation into revenues and profits.”
When Deutsche reported first-quarter 2020 numbers, all the attention was on loan loss reserves. Little notice was given to 17% growth in underlying wealth management revenues.
De Sanctis tells Euromoney: “Deutsche Bank had all the ingredients to succeed in private banking, but they were rather split up around the bank, even within Europe. The revenue-generating core of Deutsche for some years had been its investment bank. Christian Sewing decided that, given its footprint, private banking needed to be a core pillar of the group.”
This is not something we’re looking to deliver in the next five to 10 years, rather in the next two to three- Claudio de Sanctis, Deutsche Bank
De Sanctis himself was approached in 2018 to help scale up the business.
The combination with the old private and commercial business international brings added heft. That business brought in €369 million of revenue in the first quarter of 2020, while the faster-growing wealth management business brought in €466 million. Combined, the two businesses stand closer to the retail bank in Germany, which brought in €1.3 billion in the first quarter.
Deutsche describes the new International Private Bank as a roughly €3 billion annual revenue business.
The International Private Bank has €250 billion of assets under management. That’s modest next to the three largest Swiss private banks, and less than HSBC. But it at least offers a leading start point in the eurozone in a rare banking business that is expected to grow strongly without an excessive burden of risk-weighted assets and regulatory capital requirements.
As well as providing the sweetener of some cost cutting, combining divisions under one management should make it easier to identify potential high net-worth clients now being served as affluent retail customers and do a better job with owners of the SMEs Deutsche serves as a commercial bank.
While his old colleague Khan now looks to recreate inside UBS the earnings growth that Credit Suisse enjoyed from international trading solutions, de Sanctis may find that harder to repeat at Deutsche, given that it has withdrawn from cash equities.
However, he sees another opportunity: Deutsche has positioned the corporate bank at the centre of the whole group.
De Sanctis says: “Certainly the distribution of top-quality investment products and services is important to ultra-high net-worth clients and family offices. But for high net-worth clients and for entrepreneurs, the primary driver of growth in wealth management today is lending, both to their companies and to entrepreneurs themselves.”
While it is hiring relationship managers, Deutsche is looking to cut middle- and back-office costs by simplifying its product offering and concentrating on this customer segment.
De Sanctis says: “Lending to entrepreneurs has always been core to Deutsche Bank since its foundation 150 years ago. There is much more to it than simply saying, ‘Please pledge me $100 of your collateral and I will lend you $90.’
“The other large private banks to a very great extent don’t have the same credit culture, and it’s not something you can easily acquire in a year or two. Today, when we look at a complex credit transaction for a client, we certainly don’t have to compete on price. And in March and April, when markets collapsed, we were very comfortable with our risk books.”
When it reports second-quarter results at the end of July, Deutsche, like all its peers, will face relentless questions about loss provisioning and the credit outlook. It might be worth keeping an eye on the International Private Bank as Deutsche seeks to grow a new pillar of profitability without taking on undue risk.
“This is not something we’re looking to deliver in the next five to 10 years,” says de Sanctis, “rather in the next two to three.”