Deutsche Bank expects Asia to provide the biggest opportunity for its asset and wealth management business. Michele Faissola, head of Deutsche Asset and Wealth Management (DeAWM), expects the bank’s Asia business to grow by over 20% in the next three to five years on an annualized basis.
The region, he underscores, will be a critical component to the bank’s drive to reach its global target of €1.7 billion (US$2.3 billion) of income before income taxes (IBIT) at the end of next year. “We are on track and progressing fast,” he declares. At the end of 2013, DeAWM reported an adjusted IBIT of €1.2 billion. Invested assets are nearly €1 trillion at the end of May 2014.
At a global press briefing on July 8 in London, Faissola says he wants asset and wealth management “to be the growth engine for Deutsche Bank”. In 2004, DeAWM contributed 11% to the core bank’s adjusted IBIT. This has increased to 14% by the end of 2013. A former investment banker, Faissola took over the helm of the combined unit two years ago and has been focussing on ensuring a business case for the bank to pursue asset and wealth management.
While the past two years has seen considerable progress, achieving greater efficiency remains a work in progress. Faissola has reduced the cost-to-income ratio from a high of 96% in 2012 to 83% at the end of last year. “Our goal is to bring it further down to the low to mid-70s,” he adds. “At the end of the day, it is all about the bottom line.”
Compared to the competition, he admits the bank is late in building its buyside franchise. But he points out that the bank has stepped up investments including in an investment management platform (BRS Alladin) and procured a wealth management core banking operations software (Avaloq). It also established manufacturing hubs in New York, London, Frankfurt, Hong Kong and Singapore as well as dedicated DeAWM centres in Birmingham, Jacksonville, Berlin and Mumbai.
Meanwhile, the bank has exited from Russia and the Philippines where DeAWM, he believes, does not have the scale to compete. It has also rationalized the range of product offerings across active and passive strategies de-listing and closing down the smaller funds. As a result of the divestitures especially in the third and fourth quarter of 2013 in the Americas, EMEA and Asia-Pacific, around €21 billion exited from total invested assets. But in the first quarter of this year, it secured an inflow of €2.6 billion across alternatives, passive and wealth management. “The second quarter of 2014 is the best quarter yet,” Faissola reveals without disclosing actual numbers.
The future is a mix of challenges and opportunities. Faissola notes that on the one hand, the industry is facing continued margin pressure, the impact of regulation and a fiercely competitive marketplace; on the other hand there is the emerging markets’ growth, increasing demand for customized solutions as well as continuing appetite for high-quality alpha and efficient beta strategies.
In Asia-Pacific, where the firm’s total AUM stood at €65 billion at end-2013, China looks especially promising when it opens up. Faissola believes that while the industry has largely been offshore driven, it would be interesting when the onshore business becomes important. But given that China is moving towards strengthening its onshore industry, this will become more attractive in the long-term. He is therefore expanding activity in Greater China. In Southeast Asia, DeAWM recently hired a team in Indonesia to strengthen its coverage.
Among the steps globally being put in place to achieve key target metrics, Faissola highlights strengthening the US franchise as key. The bank also will accelerate investment in digital banking across Europe especially to cater to the next generation of investors. It also intends to fight for market share in servicing the high net worth individuals including increasing hirings of relationship managers by 15% in the key markets. It hired close to 1,000 people in the last 12 months including 190 in the Asia-Pacific.