Deutsche Dilemma Please Don't Sell!

Deutsche Bank is having trouble finding a buyer for its Postbank retail subsidiary. However, it should be looking for a way to reintegrate the company, writes Handelsblatt's chief finance editor.
Postbank, acquired over two stages in 2008 and 2010, may stick around with Deutsche Bank after all.

It was never really a strategic decision. When Deutsche Bank's former top management announced the sale of Postbank in 2015, it was primarily an opportunistic step. Then co-CEO Anshu Jain saw an opportunity to improve Deutsche Bank's balance sheet and save himself the humiliation of another capital increase by spinning off the affiliated retail bank, which was never popular among British and American investors more interested in investment banking.

But only two years later, it has become increasingly clear that Postbank is unsellable – at least at a price that would not be incredibly painful for Deutsche Bank. An IPO is not an option either: In the current low-interest environment, it is simply impossible to promise future shareholders that the company's value will increase.

Given those challenges, Deutsche Bank should finally put an end to this two-year impasse by reintegrating Postbank.

The cards are being reshuffled. Investors want a clear strategy, and to get it they may even be willing to accept a capital increase.

The option, which has already been scrutinized internally, offers obvious long-term benefits. In a fragmented German market, the bank would be a significant player, with about 22 million retail banking customers. Besides, economies of scale resulting from digitization are becoming more and more important.

For Mr. Jain's successor, John Cryan, Postbank's possible sale was never more than a concealed capital increase, and he never believed the step made strategic sense. But now the cards are being reshuffled. Investors want a clear strategy, and to get it they may even be willing to accept a capital increase. Deutsche Bank would be better off concentrating on European and, most of all, German companies, as well as wealthy individuals and retail customers. This, combined with continuing to trim the capital-intensive and not very lucrative trading business, would clearly position the bank strategically.

Anything else could be a slippery slope: If Deutsche Bank unexpectedly manages to sell Postbank for a reasonably acceptable price, some investors could start asking questions about the bank's remaining "blue" retail customer business. For example, what are the growth and yield prospects for this business? Why would Deutsche Bank be a better owner of the business than, say, Commerzbank? The latter is Germany's second-largest bank and currently growing in the private customer business.

But before a re-integration can occur, German financial regulators would have to become involved and allow the bank to use the liquidity of its Bonn-based subsidiary companywide. Deutsche has not been allowed to do so until now, because regulators feared the money would be gambled away in its investment banking operations. But unlike two years ago, the current top managers enjoy the trust of regulators. For that reason, it may be time for supervisors to rethink their position, too.

To contact the author: [email protected]