Last week, Deutsche Bank announced its new strategy, called “Strategy 2015+”. It is the first major strategic change under the new top-management team Fitschen and Jain. To start with a brief summary, I will copy some passages from their press release:

Note: By April 2015 Deutsche Bank has announced its next strategy. In my follow-up post I look at what they have achieved and what not, and compare both strategies:
Deutsche Bank’s new strategy – Is it anything better than the previous Strategy 2015+?

• Deutsche Bank reaffirms its commitment to the universal banking model
• Four business pillars: Private & Business Clients, Corporate Banking & Securities, Global Transaction Banking, and Asset & Wealth Management
• goal to become the leading client-centric global universal bank
• The Bank recognizes that change to its corporate culture is imperative.
• The Bank is committed to reducing bonus payments in relation to business performance and will increase the time horizon for deferred bonus payouts to top management …
• The Bank will exploit organic options such as retained earnings and bonus retention to rein-force its capital base
  The Bank is accelerating the process of shedding risk-weighted assets from non-core activities by creating a dedicated Non-Core Operations unit …
• The Bank aims to secure its long-term competitiveness by achieving operational excellence with major reductions in costs … planned savings relate to the Bank’s infrastructure, including investing in new integrated IT platforms, rationalizing regional back-office activities and centralizing procurement.
• In view of the changed market environment and stricter capital requirements under Basel 3, the Bank aspires to a post-tax return on equity of at least 12% by 2015.

This strategy is completely different from what we have seen in the 90s. It is a perfect example for a strategy that is driven by external forces. Today’s banking industry is shaken by a severe crisis which brings along major changes in stakeholder expectations – including the disastrous public image of ‘greedy bankers’ and regulatory requirements. Deutsche Bank positions itself to make the best of this hostile environment.

What strikes me first is the fact that the word ‘growth’ has become a rare term in this new strategy. Back in the 90s, growth was an imperative, especially for a bank listed at the stock exchange that aimed to be a global player. Mr. Ackermann’s strategic objective of achieving a post-Tax return on equity of 25% is well remembered. It was ambiguous, widely discussed and not well received in wide parts of the public even at that time. The new objective of 12% to 15% is really modes in comparison, although it is still ambiguous given the new market situation. Unlimited growth and profitability were en vogue in former times. Today govern-ments, regulators and ordinary people fear banks that are ‘too big to fail’. It is a logic conclu-sion that a bank that is already classified as ‘system-relevant’ – i.e. very big – does not plan to become even larger – or at least does not admit to do so.

If you have limited potential for growth and still want to increase your profitability you have to do something on the cost side. So does Deutsche Bank. This is closely related to another part of the new strategy – the disposal of non-core assets. New and pending regulation requires more equity and liquidity and limits leverage. Understandably, the potential to raise new equity is limited at the moment (Remember: ‘The Bank will exploit organic options such as retained earnings and bonus retention to reinforce its capital base‘). Hence, the bank is forced to review their activities in this context. Equity is allocated to those activities that promise returns with a low level of equity. Those activities that require high levels of equity, i.e. the more risky ones, naturally become less attractive and thus ‘non-core’. That does not imply that Deutsche Bank finds its non-core activities unattractive in itself; the y became unattractive under the new regulation. Here they did not have much choice than to readjust their strategy accordingly.
It is almost the same with the intended culture change. The image of ‘greedy bankers’ in public opinion has become disastrous. In Germany, even leaders of top industrial companies publicly require banks to refocus on their primary task, which is to serve the real economy. Hence, Deutsche Bank simply had no other choice than to give a signal ‘We have learned our lesson and will become better members of society’.

A different point is the ongoing discussion to establish a separate banking system. This would force the bank to separate its investment banking activities from the commercial banking activities. In this matter, Deutsche Bank makes it clear that it sees itself as a universal bank with both types of activities within one legal structure – and probably hopes that German politicians will not do such harm to Germany’s only remaining truly global financial institution.

So in the end of the day, Deutsche Bank’s Strategy 2015+ reflects not so much what the bank wishes to achieve over the next couple of years, but what it needs to do in order to meet external requirements, and what it feels able to achieve under the given circumstances. It is a strategy for a transition period. Ideally it leads the bank into a stable position from which it can explore new growth opportunities once the biggest turmoil is over.