Deutsche Bank is betting that its key businesses in Asia – investment banking, corporate banking and wealth management – will benefit from an improving macroeconomic outlook as the region recovers more quickly from the economic fallout of the coronavirus pandemic, according to the bank’s Asia-Pacific chief executive.
The German lender is optimistic that cross-border transactions and fixed income activities will pick up as China, India and other parts of Asia return to more normal activity levels, playing to the bank’s strengths, Alexander von zur Muehlen said.
Deutsche Bank said at its investor day this month that it is now targeting a return on tangible equity (ROTE) of 15 per cent in its Asia-Pacific business by 2022. That compares with a ROTE of 10 per cent in the region this year.
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“We do expect fee pools to develop positively, barring any Covid-19 induced explosions or implosions in the real economy,” Muehlen told the Post.
China’s and India’s economies are expected to grow at a rate of 8 per cent or more next year, while the five biggest Asean economies are expected to post a 6.2 per cent combined increase in gross domestic product, according to the latest forecast from the International Monetary Fund.
“On the institutional side and the capital markets side, activity will pick up following the pandemic,” Muehlen said. “Debt financing requirements in both the private and the public sector are going to increase. We’re seeing an increasing quantum of sovereign debt issuance coming to market now, which is something we seek to obviously participate in to support economic revival across the region [and] which also results in fee generation.”
Deutsche Bank was among a group of foreign lenders who managed the sale of billions of dollars in sovereign debt in October and November as Beijing took advantage of historically low interest rates to finance its borrowing, including China’s first negative yielding government bond.
The bank also received a domestic fund custody licence in China this month, the latest foreign lender to benefit from new rules to further open up the mutual fund industry and other parts of the financial sector in the mainland.
As regulatory restrictions are reduced or eliminated in China, more foreign investors are seeking additional investment opportunities in China, Muehlen said. That liberalisation is likely to continue despite increased Sino-US tensions, he said.
“We’re seeing a lot of private equity and hedge funds looking for investments going into China, institutional investors generally making more use of the Bond Connect schemes and the like. More will come,” Muehlen said. “People will go into ‘21 and will place their capital market bets because of this relative growth vacuum that we’re going to see between China and the rest of the world. Now that more capital is allowed to go into the country, more capital will make its way into the country.”
Muehlen, 45, replaced Werner Steinmueller, the long-time head of Deutsche Bank’s Asia-Pacific operations, following his retirement at the end of July. Muehlen has been with the bank since 1998, serving in a variety of roles, including co-head of debt capital markets in Europe, group treasurer and co-head of global capital markets.
Before taking over as Asia-Pacific CEO, Muehlen served as Deutsche Bank’s global head of group strategy and was one of the chief architects of the lender’s massive restructuring last year that included the closing of its equity sales and trading business.
Since replacing John Cryan in 2018, Deutsche Bank CEO Christian Sewing has moved to increase the bank’s profitability by shrinking its investment bank, cleaning up its balance sheet and charting a course he described as a return to its roots.
The revamp seems to be paying off.
The lender reported a profit of €309 million (US$377 million) in the third quarter, compared with a loss of €832 million a year earlier. It was the third consecutive quarter the bank was in the black.
The bank’s share price, whilst still below its highs in February, has risen 16 per cent this year. Deutsche Bank’s shares declined 4.4 per cent to close at €8.63 in Frankfurt on Monday.
Deutsche Bank also sees an “increasing quantum of capital” in China that is looking for investment opportunities outside the mainland, with Europe remaining a “very attractive” destination for Chinese investment, Muehlen said.
“This two-way traffic of capital is something we want to position ourselves for. The direction of travel is very clear,” Muehlen said. “We feel as an European based organisation, we come with the right zip code and global network and capability set to really service those cross-border activities.”
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