May 19, 2017 9:00 am JST

Deutsche Bank leans on Chinese cash for recovery

Negative rates force lender to rely on investors like conglomerate HNA

JUN ISHIKAWA, Nikkei staff writer

Deutsche Bank CEO John Cryan at a general shareholders meeting in Frankfurt, Germany, on May 18. © AP

BERLIN -- At Deutsche Bank's general shareholders meeting Thursday in Frankfurt, Germany, one name in particular on the proposed supervisory board stood out: Alexander Schuetz, founder of Austrian asset manager C-Quadrat Investment, which manages a stake in the lender for Chinese conglomerate HNA Group.

Deutsche Bank has only just closed the book on its past problems and started down the road to recovery. It reached a $7.2 billion settlement with the U.S. Justice Department late last year to resolve allegations of misconduct related to the 2008 financial crisis, and it recently completed an 8 billion euro ($8.87 billion) capital increase.

Despite the question marks still hanging over the future of Europe's largest investment bank, some are still choosing to invest heavily. A look at the list of shareholders shows a number of non-European names, with HNA the most prominent. Deutsche Bank disclosed in February that the Chinese company controlled a 3% interest. HNA has since raised its stake to 9.9%, making it the bank's largest shareholder.

Under Chairman Chen Feng, a native of China's Shanxi Province, HNA has shown a ravenous appetite for investment. Recent deals include a substantial investment in American hotel giant Hilton Worldwide Holdings, the acquisition of CIT Group's aircraft-leasing business for $10 billion, and the purchase of an office tower on New York's ritzy Park Avenue.

Chen founded Hainan Airlines and built it into the massive HNA Group in just a generation. He famously persuaded George Soros to make a significant investment in the then-fledgling business during the Asian financial crisis. For Chen, who learned airport management in Germany, the slump in the venerable Deutsche Bank's stock price amid a cloud of scandal looked like a buying opportunity.

HNA is not the only one betting on a turnaround. Deutsche Bank's other major shareholders include U.S. investment asset manager BlackRock and Qatari royalty. CEO John Cryan will need to come up with a growth strategy that can satisfy these big-spending investors.

Deutsche Bank may have resolved its money problems with the capital increase, but it now needs to improve its ability to generate profits, a major U.S. investment bank said. Though net profit more than doubled on the year in the January-March quarter, the bank relies largely on cost cutting for growth. The reported departures of big-shot bankers have only added to the uncertainty over future profits.

Frequently spotted at Deutsche Bank branches and offices are figurines of Boese Null, a money-destroying demon shaped like the number zero that represents interest rates that now sit at or even below that figure. For Deutsche Bank, which now remains saddled with a massive retail-banking division after giving up on selling its Postbank unit, rate normalization is a must for boosting profits.

The question is whether HNA and other investors will have the patience to wait for a policy shift by the European Central Bank. The pressure is on Deutsche Bank's management to figure out a more robust plan for growth.

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