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Several Wall Street banks and investment firms, including Citigroup, Jefferies Financial Group, and Bank of America, have reversed efforts to get staff back to the office as the Omicron variant of the virus spreads across the Northeast. 

Deutsche Bank has encouraged its New York staff to work remotely for the last two weeks of the year and are likely to continue working remotely for several weeks into 2022. Meanwhile, Wells Fargo has also delayed its return-to-office plans. In a statement, the bank saidGiven the changing external environment, we are delaying our return-to-office plans.”

We are continuing to closely monitor the environment with the health and wellbeing of our employees as our priority,” Wells said. “We look forward to fully returning our teams back to the office.”

New York City is being hit hard by Omicron. Last week, cases rose by around 60%. 

Speaking to Reuters, Neal Mills, chief medical officer for the professional services firm Aon said that, while employers are targeting February as a date to make the return, the situation is changing fast. As such, employers “are reluctant to do any communications”, Mills said. 

James von Moltke has been CFO and a member of the Management Board of Deutsche Bank since July 2017. After graduating from New College, Oxford, James worked at Credit Suisse for three years, followed by ten years at JP Morgan in both New York and Hong Kong. James then joined Morgan Stanley, where he led the Financial Technology Advisory Team. Prior to joining Deutsche Bank, James was Treasurer of Citigroup.

James serves on a number of industry bodies. He is a member of the Exchange Councils of Eurex and the Frankfurt Stock Exchange and represents Deutsche Bank on the Executive Board of the Deutsche Aktieninstitut eV (German Equity Institute). James also serves on the Steering Committee on Regulatory Capital of the Institute of International Finance. This year, as the financial industry’s transition away from LIBOR gathers pace, James was appointed Chair of the Euro Risk-Free Rates Working Group of the European Securities and Markets Authority (ESMA).

James, who was born in Heidelberg, serves on the Boards of Directors of the American Chamber of Commerce in Germany, the Atlantik-Brücke eV (Atlantic Bridge), and the Centre for Financial Studies, part of the Goethe University in Frankfurt. 

James, why did you join Deutsche Bank?

Throughout my professional career, I have been passionate about helping to lead organisations through times of change. As Treasurer of Citigroup, for example, with responsibility for capital, funding and liquidity, I was able to support a fundamental restructuring of the organisation in the aftermath of the financial crisis of 2008-9. Coming to Deutsche Bank in 2017, I met a dynamic new management team committed to tackling the challenges facing the organisation. This culminated in the radical transformation programme which we launched in July of 2019 and are currently executing.

This also gave me a chance to contribute my international experience at a leading European financial institution, the market leader in my native Germany. Deutsche Bank is Germany’s leading bank with strong European roots and a global network – the only German bank identified as a Global Systemically Important Bank (G-SIB) by the Financial Stability Board. Since its founding in 1870, Deutsche Bank has supported German industry both at home and across the globe. Acting as a trusted adviser and risk manager, Deutsche Bank has built relationships with corporate, institutional and private clients which have flourished over multiple generations. We’re building on this tradition and shaping this bank for the future – and that’s an exciting mission to be part of.

What is the background for Deutsche Bank’s transformation strategy?

In launching our transformation strategy, we set out to resolve several key challenges. We needed to improve profitability, reduce costs, instil greater discipline in capital allocation, reduce leverage, and at the same time sharpen our focus on building sustainable relationships with our most important clients. Our response to these challenges was the most fundamental restructuring of Deutsche Bank in the past two decades. We set ourselves an ambitious timeframe for execution: we aim to complete this transformation in three and a half years from our launch in mid-2019, so by the end of 2022.

And what are the objectives of the transformation?

We focused our transformation strategy on four fundamental goals:

We also set ourselves clear financial targets for 2022. These included a post-tax Return on Tangible Equity of 8%, and above 9% in our Core Bank; a cost/income ratio of 70% and maintaining a Common Equity Tier 1 (‘CET1’) capital ratio of at least 12.5% throughout the transformation process.

What are your priorities in Deutsche Bank’s core businesses?

We set ourselves clear objectives for each of the Core Bank’s four businesses:

In the middle of a global pandemic, that’s an ambitious agenda. What progress have you made so far?

The pandemic forced us to transfer around 70% of Deutsche Bank’s staff – more than 60,000 people – to working from home in a matter of days. Despite that, we’re on track with our strategic and financial objectives:

How important is sustainable finance for Deutsche Bank’s future setup?

Deutsche Bank is absolutely committed to sustainable finance, both within our own operations and in helping our clients on the path to meeting the Paris Agreement on Climate Change. We have set clear targets for financing and investment in environmental, social and governance (ESG) activities, both at the Group level and for each core business. In the eighteen months up to June 2021, our cumulative volumes of ESG financing and investment reached nearly € 100 billion – halfway to our goal of at least € 200 billion by the end of 2023. Deutsche Bank serves on the Sustainable Finance Committee of the German Government and is a founding member of the Net Zero Banking Alliance and other industry bodies. Our commitment to a more sustainable Deutsche Bank is also supported by our key stakeholders: Moody’s Investor Services, the leading rating agency which recently upgraded Deutsche Bank’s credit ratings, made clear that “DB’s sharpened focus on sustainability and attention to fast-evolving environmental, social and governance standards are credit positive.”

Deutsche Bank is absolutely committed to sustainable finance, both within our own operations and in helping our clients on the path to meeting the Paris Agreement on Climate Change.

What role has the Finance function played in Deutsche Bank’s transformation?

Finance has played and continues to play, a vital role in planning, designing, enabling and funding Deutsche Bank’s historic transformation. In several ways, we have redesigned Finance’s processes, our ways of working and our culture in order to help the bank reach its goals. Some of Finance’s key contributions were:

According to Reuters, the 15-year green bond, due 4 February 2037, received over €135 billion of demand. This is the highest level of demand for a green bond in the government debt market on record, closely trumping the £10 billion raised by the UK government with a £100 billion order book back in September

The EU has hired Crédit Agricole, Deutsche Bank, Bank of America Securities, Nomura and TD Securities to lead the sale, with the launch forming part of the funding for the Next Generation EU budget. 

With the EU aiming to be carbon-neutral by 2050, the bond will finance projects that benefit the environment in member states. This will include clean energy, adaptation to the climate crisis, and an increased focus on energy efficiency. 

Green bonds will also help the EU tackle the coronavirus and its impact on economies. 30% of the EU’s €800 billion pandemic recovery scheme will be funded by green bonds, which will provide grants and loans to member states until the end of 2026.

In the bank’s latest survey of over 550 market professionals, it was uncovered that 58% of respondents expect a change of up to 10%. Meanwhile, 10% of respondents are forecasting a sharper sell-off in the equity market, and nearly 31% of investors believe that the markets will reach 2022 without seeing a decline. 

The survey revealed that the greatest risk to the current relative market stability was new variants of the Covid-19 virus that are vaccine-resistant. 53% of survey respondents said that this was the factor that concerned them most. Other prominent concerns included economic growth that is weaker than expected, higher than anticipated inflation, a central bank policy error, and waning vaccine efficacy. 

Other survey respondents also expressed concerns over the debt burden, geopolitics, fiscal policy being tightened too rapidly, and a tech bubble bursting.

The past year has seen global stock markets recover well from the pandemic due to central bank stimulus, government spending, and vaccine rollout programmes. Since the crash in March 2020, global markets have almost doubled, with the FTSE 100 is almost up 8% year-to-date.  

However, economists are concerned that the recovery seen so far is beginning to lose pace as the Delta variant continues to spread across the globe. Deutsche Bank’s survey found that 44% of global investors expect lockdown restrictions to continue as they have been, while 34% of respondents believe further restrictions will be introduced. 

The bank has now allocated €761 million in credit loss provisions, up from €500 million reported in Q1, a reflection of the continued impact of the COVID-19 pandemic.

Deutsche Bank is currently grappling with a major restructure in response to annual losses sustained over five years.

However, in its Q2 earnings report, the bank posted a €158 million pre-tax profit despite its restructuring costs and a rise in credit loss provisions. Its year-on-year group net revenues also saw a 1% increase to €6.3 billion.

Deutsche Bank’s chief executive, Christian Sewing, said that the group is optimistic and fully on track to meet all of its targets.

In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets,” the CEO said in a statement on Wednesday. “This enabled us to more than offset higher provision for credit losses and remain profitable while supporting clients through difficult conditions.”

The bank’s net revenue of €6.3 billion for Q2 beat estimates from analysts compiled last week, which forecast only €6 billion, slightly lower than the same period in 2019.

On the back of Deutsche Bank’s recent ordeal, Finance Monthly gets the lowdown from Zac Cohen, General Manager at Trulioo, who discusses the steps banks and other financial institutions can take to strengthen their fight against money laundering.

Deutsche Bank recently made headlines after the German financial watchdog BaFin appointed an independent auditor to monitor the bank’s Anti Money Laundering (AML) compliance. This is the first time such an appointment has been implemented, highlighting the bank’s failure to meet due diligence requirements surrounding terrorist financing, money laundering and other illicit flows of capital.

As banks and financial organisations now operate in an increasingly global marketplace, they must grapple with the consequences of handling cross border transactions. Having lax Know Your Customer (KYC) procedures in place can be potentially crippling for banks worldwide, with fines being issued in the hundreds of millions if chinks in their anti-money laundering armour are uncovered.1 Yet despite over $20 billion being spent on compliance annually, only 1 per cent of illicit transactions are seized each year.2

Financial globalisation, still very much a reality despite shifting geo-political attitudes towards it, makes international money laundering practices a real force to be reckoned with. Indeed, international money laundering is becoming more widespread and this is, in part, down to the difficulties in maintaining full transparency when dealing with international clientele.

Banks and other financial institutions are legislatively obliged under Anti-Money Laundering rules to have full knowledge over their clients’ identities and the origins of their wealth. With money coming in from all corners of the globe, banks must be able to perform Know Your Customer (KYC) and Know Your Business (KYB) checks on a client base that may be moving money all around the world. In addition, establishing a “beneficial owner”, a derivative of KYC, must be a priority before financial transactions occur. The 4th Anti Money Laundering Directive (4AMLD) stipulates the necessity of ascertaining the beneficial owner of business customers, partners, suppliers and other business stakeholders. Some transactions, originating from unknown geographic localities, can be particularly difficult to verify.

The key to combatting this problem is leveraging the available technologies that can be implemented to help promote transparency. This is crucial as these technologies have the view to reducing the occurrence of fraudulent transactions passing through banks and financial institutions. Bad actors are becoming increasingly sophisticated in their techniques in directing fraudulent money through banks, employing techniques such as under- or over-invoicing, falsifying documents, and misrepresenting financial transactions. This increasing sophistication that coincides with the rise in global money laundering, up 12 per cent from the previous year.3

There are however, multiple technical advances that are available to help implement and streamline the process of checking and verifying ultimate beneficial owners and promoting transparency. Automated systems and artificial intelligence programmes can be used to scour company documents for a streamlined electronic ID verification sytems to verify personally identifiable information in conjunction with ID document verification and facial recognition technology to help paint a full picture of each beneficial owner of a business.

Putting this all together to create certainty and transparency about who you’re doing business with is crucial. Deutsche Bank have suffered severe reputational damage as a result of several anti-money laundering breaches that have reached the public’s attention over the last few years. The question remains, can banks implement the technology and processes they need with sufficient effectiveness to recover from this reputational strain?

1 https://www.reuters.com/article/us-deutsche-bank-moneylaundering-exclusi/exclusive-deutsche-bank-reports-show-chinks-in-money-laundering-armor-idUSKBN1KO0ZC

2 https://www.politico.eu/article/europe-money-laundering-is-losing-the-fight-against-dirty-money-europol-crime-rob-wainwright/

3 https://www.pwc.com/gx/en/services/advisory/forensics/economic-crime-survey.html

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DeutscheBank_Q110_Lounge_BuecherregalDeutsche Bank reaffirmed its commitment to being a leading global bank based in Germany when it announced the next phase of its strategy, covering the period through to 2020, at the end of April. The bank’s announcement covers key strategic decisions, division-specific initiatives and financial targets.

Jürgen Fitschen and Anshu Jain, Co-Chief Executive Officers, said: “This marks the next milestone in the journey we began in 2012. Deutsche Bank’s course is clear. We reaffirm our commitment to being a leading global bank based in Germany. To achieve this, we must remain client-centric, but focus more sharply on mutually attractive client relationships; remain global, but become more geographically focused; and remain universal, but avoid trying to be all things to all people.”

As a result of its strategy review process, the bank took six new decisions which support the next phase of its strategy. The bank’s objectives are to:

Corporate Banking & Securities (CB&S) aims to further de-emphasise lower-return business, increase its focus on client solutions and invest in growth in higher-return products. CB&S plans to reduce gross leverage by approximately €200 billion, while redeploying €50-70 billion to improve its position in relationship-driven businesses.

Deutsche Bank also said it plans to invest up to €1 billion additionally over the next three to five years in digitisation to capture new revenue opportunities, for example, through remote advisory channels; realise platform efficiencies through automated or digitised processes; and develop new client propositions.

Through 2020, the Bank’s objective is to refocus its global footprint, reducing the number of countries or local presences by 10-15% and actively investing in markets and urban centres which are most relevant to international and multinational clients.

Trading Floor - Deutsche BankThe Financial Conduct Authority (FCA) has handed Deutsche Bank AG a £227 million (€315 million) fine, its largest ever for LIBOR and EURIBOR-related (collectively known as IBOR) misconduct. The fine is so large because Deutsche Bank also misled the regulator, which could have hampered its investigation.

Georgina Philippou, acting Director of Enforcement and Market Oversight, said: “This case stands out for the seriousness and duration of the breaches by Deutsche Bank – something reflected in the size of today’s fine. One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn’t limited to a few individuals but, on certain desks, it appeared deeply ingrained.

“Deutsche Bank’s failings were compounded by them repeatedly misleading us. The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls.

“This case shows how seriously we view a failure to cooperate with our investigations and our determination to take action against firms where we see wrongdoing.”

Between January 2005 and December 2010, trading desks at Deutsche Bank manipulated its IBOR submissions across all major currencies. This misconduct involved at least 29 Deutsche Bank individuals including managers, traders and submitters, primarily based in London but also in Frankfurt, Tokyo and New York.

Trading Floor - Deutsche BankDeutsche Bank’s Global Social Finance Group has announced the closing of the Essential Capital Consortium (ECC), a five-year $50 million (€47 million) social enterprise fund, which is part of its family of social impact funds first launched in 2005.

With a list of investors including Church Pension Fund, MetLife, Inc., Agence Française de Développement (the French Development Agency), Deutsche Bank, Calvert Foundation, Prudential Financial, Inc., the Multilateral Investment Fund, member of the Inter-American Development Bank Group, Left Hand Foundation, IBM International Foundation, Tikehau Capital, Salvepar, Cisco Foundation and the Posner-Wallace Foundation, the ECC will provide debt financing to social enterprises in the energy, health and Base of the Pyramid financial services sectors. The Swedish International Development Cooperation Agency (Sida) is also providing ECC with crucial credit enhancement support.

The ECC, which will finance 25 social enterprises including microfinance institutions (MFIs) expanding their offerings of financial products, has made its first round of loans to three organisations: Sproxil, a developer of a patented text message-based drug authentication system; Tiaxa, a provider of “nanocredits” to poor consumers in developing countries via mobile phones using big data analytics; and Arvand, a Tajikistan-based MFI providing innovative “green loans” to finance solar panels, clean cookstoves and other energy efficient products.

“The Essential Capital Consortium is a pioneering fund that aims to finance the growth of social enterprises as vehicles to achieve measureable benefits in improving the lives of the poor, bringing together well-respected and similarly motivated investors to fill an existing capital gap,” said Gary Hattem, Head of the Global Social Finance Group at Deutsche Bank. “As part of Deutsche Bank’s ongoing commitment to microfinance and the impact industry, the ECC provides responsive debt capital to support the next generation of social entrepreneurs globally who are redefining a market approach to addressing fundamental humanitarian challenges.”

 

Deutsche Bank Tokyo

Deutsche Bank Tokyo

Hedge fund industry assets are set to surpass $3 trillion by the end of the year, according to Deutsche Bank’s 13th annual Alternative Investment Survey. Institutional investment in hedge funds is set to increase, with 39% of these investors planning to increase their allocation to hedge funds in 2015.

Deutsche Bank surveyed 435 hedge fund investors, representing over $1.8 trillion in hedge fund assets under management (AUM), who shared insights into their sentiment and allocation plans for 2015.

The survey found that asset growth continues to be concentrated among the largest managers. Since 2008, assets managed by firms with more than $5 billion AUM have grown 141%, compared to 53% for firms with less than $5 billion. Today, it is estimated that less than 200 hedge fund firms account for more than two thirds of industry assets.

“As institutional investors’ needs continue to evolve, they are increasingly looking to work with larger hedge fund managers and intermediaries who can meet their appetite for comprehensive portfolio solutions,” said Barry Bausano, Co-head of Global Prime Finance at Deutsche Bank. “More and more, we’re seeing today’s hedge fund assets concentrated among the largest managers.”

“Hedge fund managers who continue to focus on alignment of interests with the allocator community will have an increasingly competitive advantage as our industry grows and evolves,” said Murray Roos, Co-head of Global Prime Finance at Deutsche Bank. “Reward for alpha generation and co-investment opportunities will be key factors in building strong partnerships between limited partnerships and general partnerships.”

Manager selection is becoming increasingly important, as the gap between outperforming and underperforming hedge funds widens. While the average hedge fund returned 3.33% in 2014, the top 5th percentile generated returns greater than 22%.

Investors risk/return expectations for traditional hedge fund products continues to come down in favour of steady and predictable performance: only 14% of respondents still target returns of more than 10% for the hedge fund portfolio, compared to 37% in 2014.

With this in mind, however, 40% of respondents now co-invest with hedge fund managers as a way to increase exposure to a manager’s best ideas and enhance returns. 72% of these investors plan to increase their allocation in 2015.

Following a strong year of performance, at least one in every three respondents are planning to increase their allocation to quantitative strategies in 2015. Three of the most sought after quantitative strategies include commodity trading advisor (CTA), quant equity market neutral and quant equity.

Deutsche BankGermany’s Deutsche Bank posted strong income and profit figures for 2014 with income before income taxes (IBIT) more than doubling to €3.1 billion for the year ended December 31, 2014.

Core bank IBIT was €6 billion, up €1.1 billion from FY2013, while net revenues remained stable at €32 billion.

Jürgen Fitschen and Anshu Jain, Co-Chief Executive Officers of Deutsche Bank, said: “In 2014 our pre-tax profit rose from €1.5 billion to €3.1 billion, and net income rose from €681 million to €1.7 billion. For the first time ever, each of our four core business divisions delivered more than €1 billion in pre-tax profits.”

They continued: “In the fourth quarter of 2014, we reported a pre-tax profit of €253 million versus a loss of €1.8 billion a year ago and net income of €441 million versus a loss of €1.4 billion a year ago. Further, we increased net revenues in the fourth quarter by 19% year-on-year from €6.6 billion to €7.8 billion largely reflecting higher revenues in Corporate Banking & Securities, where we gained further market share across Fixed Income and Corporate Finance during the year. Also in the fourth quarter, we surpassed €1 trillion in assets under management in Deutsche Asset & Wealth Management.”

Fourth quarter 2014 results saw Corporate Banking & Securities (CB&S) IBIT at €516 million, up €384 million from prior year fourth quarter reflecting solid revenues, lower litigation expense and cost-to-achieve (CtA).

Private & Business Clients (PBC) 4Q2014 IBIT of €55 million decreased by €163 million from 2013 as stable revenues, and lower provision for credit losses were more than offset by €330 million extraordinary charges for the reimbursement of loan processing fees.

Global Transaction Banking (GTB) IBIT of €265 million increased by €179 million compared to Q4 2013 while Deutsche Asset & Wealth Management (Deutsche AWM) 4Q2014 IBIT stood at €365 million, up €165 million compared to Q4 2013.

“While we are encouraged by many of our full-year and fourth-quarter business results, we are working hard to further manage our cost base, maintain our capital strength and increase our returns to shareholders. We look forward to updating the market, and all of our stakeholders, on the next phase of our strategy in the second quarter,” Fitschen and Jain concluded.

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