Deutsche Bank has been implementing a transformation strategy across its global operations that includes exiting some of its non-core activities. Stuart Lewis, chief risk officer at Deutsche Bank AG, tells Bhavik Nair that the amount of job reductions as a consequence of the transformation would be quite limited in India. Edited excerpts:
How is your transformation strategy panning out?
Our strategy was mainly to focus on our core businesses. We are trimming our investment banking business with a far smaller equity spectrum and are selling some of our equities activities to BNP Paribas. We will continue to serve our clients across the whole capital markets spectrum, but are exiting some activities which we deemed as non-core. The other component of our strategy is the corporate bank — the core lending business for corporates — which is doing very well. We have a very strong presence in that business here.
Retail banking remains an area of focus as does private banking. The final component of the strategy is the asset management business which is doing quite well. So it’s all going pretty much according to plan.
How is your transformation strategy impacting India?
India for us has always been a market which is very transaction banking and debt capital markets—focussed. In terms of the strategy, I would say there would be a limited impact on India. This is an important market in the Asia Pacific region. It is among the top three in terms of revenue generation. We have infused nearly euro 500 million of additional capital in India this year because we see opportunities to grow. We are known as a traditional structured credit house and there are clear opportunities in India that we feel we have in structured lending in addition to our forex and DCM capabilities.
Is there any forecast on how the job cuts at Deutsche would be impacting your Indian business?
The impact on job cuts would be around the equities presence and also where we had large operational support for the equities business. In India, we have a big operations subsidiary. The amount of job reductions as a consequence of the transformation would be quite limited here. It has impacted geographies where we had a considerable presence in the equities business.
Under the current scenario, what is your view on the credit profiles of Indian companies?
Lending in India is not without risks. But, I think that the credit underwriting standards that we have in India are pretty high and that has protected us from some of the bigger defaults. Many of these defaulting assets need restructuring and we have quite an active distressed products group that can help our local and international clients with some of that restructuring. When you have strong credit underwriting standards you can avoid the big losses and that means you have capital available to capture some of the opportunities around debt restructuring. But over the last few years, we have seen some deleveraging by Indian companies which is a positive.
Do you think the possibility of a recession cannot be completely ignored, especially in Europe?
If you look at some of the macroeconomic numbers coming out of the EU, it is challenging. The manufacturing sector in Europe has started to see a slowdown. I think for some time, there was an aspiration that the slowdown will see some recovery and it will not necessarily hit the domestic services sector. But we are seeing some slowdown in the services sector too, like in Germany. I think we will see a technical recession, two quarters of negative growth, driven mainly by the trade wars. What we don’t see is a big spike in corporate defaults given the negative interest rate environment. I think credit spreads will widen, though. Banks in most countries in Europe have cleaned up their non-performing loans and they are very well capitalised. So the low interest rate environment will help against corporate defaults but the biggest challenge banks face now is a structural one due to negative interest rates.