The mood at the annual management conference of Postbank, the retail subsidiary of Deutsche Bank, hadn’t been this good in a long time.
A participant at the December gathering in Berlin reported that many of the several hundred Postbank managers on hand seemed to be feeling liberated.
After seven long years of being owned by the ailing Deutsche Bank, a future was beckoning to Postbank employees. Germany’s largest financial institution last year announced plans to divest itself of Postbank. The bank is supposed to be floated or sold by the end of this year. The initial signs were that there would be some interesting takers, including Austria’s Bawag.
It’s never been a particularly happy marriage. The workers are far removed from the many legal scandals that have dented their parent company’s reputation over the years. Many Postbank employees, who are used to a more traditional style of banking unlike that of the risky high-flying world of investment banking, consider Deutsche Bank’s executives to be arrogant.
Employees saw the split as a chance for a fresh start. Postbank head Frank Strauss told Handelsblatt back in August that an initial public offering was a “very acceptable and desirable solution for Postbank.”
The optimistic mood, however, is likely to have lessened since the start of the year. German business weekly WirtschaftsWoche has learned that the executive staff at Deutsche Bank has shelved the plan to divest Postbank – at least for this year.
Now the regulators are also forcing the banks to boost their equity. To meet this requirement, Deutsche Bank must divest itself of business, which was the deciding factor for withdrawing from Postbank.
WirtschaftsWoche, a sister-publication of Handelsblatt, cited sources inside Deutsche Bank’s non-executive supervisory board and management. At best, it was said, a small part of Postbank will be floated on the stock market in 2016.
At any rate, it now seems that Deutsche Bank chief executive John Cryan would prefer selling the Bonn-based Postbank to a single competitor, rather than launching an IPO. That would also mark a reversal from the original plan as understood by Mr. Strauss. Frankfurt-based Deutsche Bank in statement said only that deconsolidation of Postbank remains its goal.
It’s not surprising that Mr. Cryan might have other plans. The decision to part with Postbank was made last April by the management board under Mr. Cryan’s predecessor, Anshu Jain, who was let go in June after a shareholder revolt against the bank’s many legal scandals and lackluster plans for reform.
Since taking over in July, Mr. Cryan has sought to put his own imprint on the bank’s plans to deeply restructure its operations. Deutsche Bank is aggressively scaling back its operations, pulling back from countries where it is failing to make a profit. The planned separation with Postbank, one of the most important results of months of strategic debates, was kept by Mr. Cryan.
The sale also marked a step backwards. Deutsche Bank began taking over Postbank incrementally in 2008. It had fought hard to acquire Postbank, beating out several interested rivals including Spain’s Santander.
Times were different then. In the 2008 financial crisis, banks had difficulty borrowing money on capital markets for their business operations. The head of Deutsche Bank at the time, Josef Ackermann, was striving to open up new sources of refinancing via Postbank, where many private customers hoarded their savings. Moreover, he wanted to make his bank independent of the income from investment bankers.
But Mr. Ackermann’s plan worked only to a degree. Although the Postbank delivered a stable income, the German Federal Financial Supervisory Authority prohibited Deutsche Bank from fully using the Postbank customers’ money.
Now the regulators are also forcing banks around the world to boost their equity. To meet this requirement, Deutsche Bank either needs to raise capital or divest itself of business, which was the deciding factor for withdrawing from Postbank. Mr. Jain and his co-chief executive, Jürgen Fitschen, announced a return of the subsidiary to the stock market by the end of 2016.
That won’t be easy. Sources say Deutsche Bank should be able to separate itself technically from Postbank by the end of June – reversing an ambitious effort to consolidate the two banks’ IT systems that had been in the works for years. But the current low interest-rate environment in Europe makes an attractively priced majority sale of Postbank highly unlikely.
A year ago, Deutsche Bank valued its shareholding at about €6 billion ($6.5 billion), roughly equal to what it paid back in 2008. Mr. Cryan has probably revised this value downward by around €2 billion since then. But even that could be difficult to sell to investors. For Deutsche Bank, massive write-offs could be the result.
Postbank is clearly hoping the IPO will still go forward. Many managers at the December conference were dreaming of a return to olden times, when Postbank was listed in the German DAX stock-market index of 30 blue-chip companies. The bank, founded as a state-owned postal service bank at the start of the last century, was in its heyday after going public in the 1990s. By the early 2000s it had grown to form the largest customer base in all of Germany – some 11 million.
Like many European commercial banks, its value is suffering in the current era of low interest rates, since the bank primarily relies on profitably investing its customers’ deposits. But this is bringing in less and less. Although the bank’s management-board chairman, Frank Strauss, is trying to provide loans to medium-sized companies and consumers, the bank’s deposits still exceed loans by about €8 billion.
“Buying Postbank shares means betting on rising interest rates,” said one funds manager, and hardly anybody wants to take that bet at the moment. Even if a turnabout in interest rates comes, it is likely to take years until it has a noticeable effect on Postbank’s profits. First of all, the prices will drop, such as those of poorly-yielding bonds. They will only gradually be replaced by higher-yielding products. That’s why it will hardly be possible to obtain a good price for Postbank shares with financial investors in 2016.
That’s also why Mr. Cryan hopes that another bank might be prepared to take the whole institution off his hands. A competitor would be able to strengthen its position in Germany with the takeover and therefore might pay a higher price than financial investors. At least that’s the thinking.
The problem is that many European banks are in the same dire straits as Deutsche Bank. That applies to, say, Italy’s Unicredit, which has been being mentioned at Deutsche Bank as an interested party. Unicredit already owns HypoVereinsbank in Germany. Last summer, the Italian bank denied any interest in buying Postbank, and has since embarked on its own deep restructuring program.
Germany’s number two bank Commerzbank, which is also mentioned and is expanding its European operations, most likely lacks the money.
The lone remaining candidate likely is the Santander Group. But there are reservations about the Spanish firm at Deutsche Bank, where top officials fear Santander gaining too strong a position in Germany. At Postbank, as well, a sale to Santander is seen as a worst-case scenario. Santander is extremely cost-orientated and probably would clean house ruthlessly.
An agreement between Postbank and labor unions that bans dismissals runs out in mid-2017. Any celebratory mood at Postbank would then be extinguished once and for all.
A version of this article first appeared in German business weekly WirtschaftsWoche. Cornelius Welp and Melanie Bergermann are correspondents for the magazine. Christopher Cermak of Handelsblatt Global Edition contributed to this story. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org