Banking Blues

Fatalism as Postbank Sale Looms – Again

Postbank strike Davids sven darmer
Postbank's employees on strike.
  • Why it matters

    Why it matters

    Deutsche Bank is seeking a change in strategy to remedy recent troubles, and its retail arm is an attractive target. But worried employees will have their say too.

  • Facts

    Facts

    • Deutsche Bank values Postbank, its retail banking subsidiary, at €6 billion, or about $6.42 billion.
    • Postbank emerged from the breakup of the federal post office and was privatized in 1995.
    • Postbank’s pre-tax return of 7.2 percent is higher than Deutsche Bank’s 5.1 percent.
  • Audio

    Audio

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Experienced Postbank executives remember 2008 well. Just before the start of the financial crisis, Germany’s postal service, Deutsche Post, had decided to put its banking subsidiary up for sale.

“Uncertainty spread across the bank like mildew,” recalled one top manager, who declined to be named. “That cannot be allowed to happen again, under any circumstances.”

Back then, things only settled down when it became clear that Postbank’s future was secured. Its new owner became Deutsche Bank, the country’s largest bank.

The calm has been short-lived. Now, less than five years after it was taken over by Germany’s leading financial firm, Postbank chief executive Frank Strauss is once again trying to calm his colleagues. The retail bank is up for sale yet again.

“Please don’t be unsettled by public speculation about our strategy,” he wrote in a recent letter to employees.

But there are good reasons to be unsettled. Deutsche Bank is suffering from a low return on equity, and its stock price also leaves a lot to be desired. The bank is considering a drastic new strategy that will secure its future. Some of the options include selling Postbank, its retail banking arm.

To make things worse, Postbank is currently engaged in one of the toughest labor disputes in its history.

“That makes us the pinball again,” is how one Postbank manager put it.

Deutsche Bank’s management is discussing two favored models, both of which would have grave consequences for its Bonn-based subsidiary: either shedding Postbank through a straight-out sale or flotation on the stock exchange, or otherwise spinning off its entire retail banking business into a separate entity, with Postbank as the nucleus.

A third strategy – continuing with the original plan of fully integrating Postbank and radically cutting costs in the retail business — is unlikely, according to company sources. This despite about three quarters of the technical integration between the parent and subsidiary reportedly being completed.

About 2,000 employees work at Postbank’s headquarters in Bonn, where there is a strange mixture of fear, defiance and fatalism setting in. Many are afraid that headquarters will be drastically reduced in size or disappear altogether.

Others see a silver lining. The connection to Deutsche Bank was never anything more than a marriage of convenience. Many now hope for a quick divorce without a long drawn-out war of attrition.

Many “Postbankers,” as they are called, are of the opinion: “If it solves a problem for Deutsche Bank, then they should just sell us.”

In his letter to employees, Mr. Strauss tried to lift spirits. “Our future-oriented business model will sustain us through difficult times,” he wrote.

At a recent sales conference in Berlin, he repeated this mantra tirelessly: We are good, no matter who owns us.

But Mr. Strauss’ words of inspiration cannot dispel the fear and fatalism.  There are too many unanswered questions and too many rumors.

One scenario is a takeover by Santander, the Spanish bank that is Europe’s biggest in terms of market capitalization. How many jobs would be lost then? That was one of many anxious questions posed at a recent employees meeting. After all, Santander is already active in Germany with its own Santander consumer bank.

“Santander’s headquarters in Mönchengladbach could take over some functions, if it really came to a sale,” said an insider.

Frank Strauss Postbank reuters
Frank Strauss, chief executive officer at Postbank. Source: Reuters

 

To make matters worse, Postbank is currently engaged in one of the toughest labor disputes in its history.

On a recent cold Saturday morning in Gross-Gerau, a small town near Frankfurt, the Havanna restaurant was busy with men and women in dark blue Postbank uniforms. Instead of working, they sat at long tables having breakfast – taking part in a warning strike called by the trade union Verdi.

The atmosphere among the worried Postbank employees was somber. Some of them used to work for the federal post office. During the privatization process in 1995, they moved to the newly-formed Postbank, hoping their jobs would be just as secure. They had enjoyed job security for a long time, as the union had successfully negotiated protection against layoffs for the past 20 years.

But in the most recent dispute, demands for job guarantees were rejected by employers. That has unsettled the men and women wearing blue and yellow scarves and ties.

“Our average age is around 50, which makes it difficult to find a new job,” said one of the former post office employees, who declined to be named. “Some of us don’t even have formal banking training.”

Postbank has worked hard to improve in the past few years. It may even be leaner than its parent company, Deutsche Bank.

“We have done our homework – the bank is more secure than in 2010,” said an insider. “The balance sheet has been reduced by €60 billion and the equity ratio of 10.5 percent is respectable.”

Indeed, the bank’s pre-tax return on equity of 7.2 percent is higher than the parent company’s 5.1 percent. Unlike Deutsche Bank, the subsidiary has a clear strategy. Its deposit surplus has been halved to €20 billion and the focus on lending is being intensified.

Deutsche Bank above all needs new funding now to finance a new strategy and the costs from various scandals.

Despite the two banks being close to integrating their operations, it now looks like another parting of ways. “It is not a betrayal of Postbank, but it is a difficult decision,” said a Postbank manager in Frankfurt.

The Postbank employees may have a preference about whether or not the bank is sold, but the tail doesn’t wag the dog when the major shareholder is setting the agenda.

Deutsche Bank above all needs new funding now to finance its new strategy and settle the costs from various legal scandals that have undermined its profitability.

New funding was also the issue for Deutsche Post’s boss, Frank Appel, when he sold 30 percent of Postbank to Deutsche Bank in 2008, just a few days before the bankruptcy of U.S. investment bank Lehman Brothers. Then, in December 2010, Deutsche Bank gained a majority stake in Postbank.

Just four and a half years later, Postbank is up for grabs again. Insiders estimate the sales value at about €6 billion, or about $6.42 billion. They base this on the stock exchange value of €7.9 billion, minus the guaranteed dividend, which is contractually fixed until at least the end of 2016.

But the selling price is not even the first priority for the Deutsche Bank board. It is speculating, above all, on a release of equity of about €5 billion when Postbank is gone. With that, risks of €50 billion to €60 billion will be removed from the consolidated balance sheet.

But those are strategic games at the highest level, whereas staff at Postbank are worrying about keeping their jobs. The fact that their bank has a contract with the post office, set to run until 2020, does not impress many Postbank employees.

The contract states that the post office will continue to offer basic banking services in its branch offices and the post office will be a subtenant in Postbank financial centers, where it sells stamps, parcels and stationery.

“Perhaps the financial centers will be closed anyway,” said a Postbank employee. She said her boss had already threatened to close the branch if it didn’t generate enough revenue.

At the recent strike meeting in Gross-Gerau, a works council member added fuel to the fire, claiming that Deutsche Bank planned to close 250 branches and “might put Deutsche Bank staff in our branches.”

Postbank boss Mr. Strauss is trying to dispel such worries. In an interview published in the annual report, he stressed he would not close branches. On the contrary, he said he wanted to invest.

But Verdi, a major trade union, is aware of employees’ worries and wants forced layoffs to be excluded – in black and white. Battle lines are clearly drawn and three rounds of negotiations have produced nothing.

An appeal by employee representatives at the Postbank supervisory board meeting on March 23 had just as little effect as a summit meeting in Berlin, attended by the Deutsche Bank board member for retail banking, Rainer Neske, as well as Mr. Strauss.

There is defiance in the way the Postbank employees are dealing with their parent company’s change of strategy.

So now the work dispute has escalated to a ballot vote on an unlimited full-scale, national strike. More than 8,000 non-managerial employees will decide the matter in the next few days. In the reception office of a Postbank building in Frankfurt, handwritten signs inform employees when to expect the car with the ballot box.

The vote was to be completed by Saturday, and open-ended strikes could begin as early as Monday.

Also next week, the executive board of Deutsche Bank, co-chaired by Anshu Jain and Jürgen Fitschen, will present its strategy and planned implementation to the supervisory board. So a possible strike could fade into the background of what will be a difficult meeting likely to result in broad cost cutting. It is all a potentially dangerous cocktail for Mr. Jain and Mr. Fitschen.

No wonder then that the trade union Verdi feels so powerful. Over 70 percent of Postbank’s non-managerial employees are members and Verdi’s boss, Frank Bsirske, even sits on the supervisory board of Deutsche Bank.

For now Verdi is reticent about disclosing its strategy, and has only issued a terse statement that the union is seeking a solution in the best interests of employees. But lower-level works council members are on alert in both banks – and that is causing headaches for management.

“It would be bad if employees involved in joint processing activities came out in solidarity with striking Postbankers,” said a divisional director in Bonn.

Agitation and uncertainty are tangible at all levels of Postbank and have already had an effect on daily business.

“Since the beginning of the year, no new ideas have been initiated between Postbank and Deutsche Bank,” said one manager. Regular joint meetings have been cancelled and investment decisions postponed.

There is defiance in the way the Postbank employees are dealing with their parent company’s change of strategy. The same manager said company management does not wish to make decisions in transition that it later might regret.

And anyway, Postbank would only lose four months or so as a result of the current deadlock. That sounds a little like the German maxim: “Better a painful end, than pain without end.”

 

Peter Köhler heads Handelsblatt’s banking team in Frankfurt. Laura de la Motte is a correspondent specializing in banking. To contact the authors: koehler@handelsblatt.com, delaMotte@handelsblatt.com

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