Deutsche Bank leans on Chinese cash for recovery
Negative rates force lender to rely on investors like conglomerate HNA
JUN ISHIKAWA, Nikkei staff writer
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.