Financial Divestment For Sale: One Bank, Slightly Soiled

Deutsche Bank has a new strategy - and its retail arm Postbank isn't part of the plan. The post office banking network is for sale, but is it profitable enough to attract investors?
Not exactly a price catch?

At Postbank’s annual shareholders’ meeting last July, it rained buckets outside but all was cozy in the great room of Bonn’s Maritim hotel. Only a few shareholders attended and they had little reason to complain. Business was more or less going well and shareholders would get a fixed dividend.

The next meeting on May 28 will be far more eventful. Deutsche Bank, which owns 95 percent of Postbank, its retail arm, wants to push shareholders out of the business. And that is only the first step.

Just seven years after acquiring Postbank, Deutsche Bank now wants to get rid of it. If there is no buyer, Germany’s largest bank wants to sell the institution on the stock exchange. A majority of shares would be given up in 2016 and the final severance would follow in 2017.

It is a venture with many question marks. “The signs are unfavorable,” said one investment banker. “Postbank is hardly attractive at the moment.”

That is mostly due to Postbank’s business model, which is under pressure from historically low interest rates.

Internally, it has been consensus for a long time that Postbank is facing hard times.

Deutsche Bank values its retail subsidiary at €6 billion ($6.7 billion). But it is questionable whether it could get that kind of money. Insiders calculate it could actually fetch €2 billion less.

Deutsche Bank’s two chief executive officers, Jürgen Fitschen and Anshu Jain, also found it difficult to praise Postbank when they recently presented their new strategy for the financial house, which is struggling with increased regulation, fines and investor unease. Internally, it has been consensus for a long time that Postbank is facing hard times.

By buying Postbank, Deutsche Bank tried to make a bundle of money – and ultimately got burned. It integrated its Norisbank subsidiary into Postbank and invested billions in a common IT platform. But cost savings and sales of products remained below expectations. That project is now considered to have failed.

Nevertheless, Postbank is in better condition today than it was in 2008, just before the start of the financial crisis. It has reduced costs on its balance sheet and improved efficiency.

That is to the credit of Frank Strauss, who has been CEO since 2012. Since his time in India, he used to consider himself Mr. Jain’s confidante, but recently, he has rather been feeling distanced from Deutsche Bank headquarters. Insiders expect that Mr. Strauss will remain at Postbank after the split.

WTB 2014

That the bank has no glowing future is more a result of its business model than Mr. Strauss' performance. “We are a centralized savings bank,” explained a top manager.

A few years ago that might have been the mark of stability for banks, but now it’s a problem.

The low interest rates prescribed by the European Central Bank to boost economies across the continent are mainly to blame. For banks, there is hardly anything that can be earned from the difference between savings and credit interest rates.

Although the interest surplus of Postbank remained stable in 2014, it may sink this year. The BHW home loan and savings association, which Postbank took over in 2006, has become a real burden because Postbank has to pay BHW savers with interest above current levels.

Deutsche Bank considered their colleagues in Bonn to be simple and unwilling to integrate. Postbankers criticized the arrogance in Frankfurt.

Special features of the former state-owned bank aggravate matters more. A contract with the former owner, Deutsche Post, the German public postal service, binds the bank to accepting letters at its 1,100 branches and to sell stationery products. That creates business, but prevents savings. The agreement can’t be canceled until 2020 at the earliest.

Following bitter labor disputes, Postbank has also ruled out operations-related savings until 2017. That does not make job cuts impossible, but they would be expensive. And about one-third of the 15,000 employees are state officials and so can’t be removed.

Insiders expect Deutsche Bank will restructure its subsidiary before it casts it away. Aside from job cuts, what will happen to Postbank loans? The bank currently holds €11 billion in loans for commercial real estate and structured securities. Dismantling those areas cost the bottom line more than €500 million in 2014.

The first step of getting out of the “powerhouse” – as the merger of the two banks was labeled internally – might be the dissolution of the common service subsidiary. Only in the past year did Deutsche Bank bundle all the back-office activities there. A split might be pending now.

There was never a real love between the two unequal partners. The Deutsche Bank side considered their colleagues in Bonn to be simple and unwilling to integrate. Postbankers criticized the arrogance in Frankfurt, excessively long meetings and complicated decision-making.

Soon all that will be over – and yet the future for both partners is uncertain.


This article originally appeared in the business magazine WirtschaftsWoche. To contact the author: [email protected]