Deutsche Bank's Lynne: "It is a question of scale"

The move by Deutsche Bank to appoint an institution veteran, David Lynne, to head its global transaction banking in Asia Pacific in May was not unexpected. It can be taken as part of the on-going strategic cost management and right sizing at the bank.

Following the third annual year of loss, $621 million in 2017, and disappointing first quarter 2018 performance, CEO Christian Sewing, had written to staff in April of the urgent need to adapt to changed market conditions and to reduce workforce and right-size the bank.

Lynne sees this as a necessary part of re-organising the bank, he said:” You never want to lose senior people but, sometimes it actually creates some room and oxygen for the people underneath. It changes their energy and the strategy.”

His immediate focus however is to continue to focus on key customer relationships that the bank has built over the years.

“In my area, our core focus is on transaction banking, financing and fixed income and currencies. We want to facilitate the business flows of our key multinational clients across corporates and financial institutions both into APAC and outbound,” he emphasised. “The key strategy is how do we drive that better, in a more coordinated and focused fashion.”

It is a question of scale

Despite once being the largest bank in the world at the peak of its aggressive and what was ultimately unstainable expansion in the early 2010s, Deutsche Bank now in a new post-crisis regulatory landscape, and like many other European banks, faces the issue of scale.
“That’s a problem statement for European banks in general. The European banks largely do not have a 500 million-people universe. They don’t have capabilities across every country in that universe. And scale has been a thing,” Lynne remarked.

He continued: “Fixed cost of production has gone up massively and if you spend that, you want to have as many users of scale and do as much as possible. Retail banking and transaction banking are a scale business these days.”

In this regard, he feels that US banks clearly have more of an advantage in terms of “having one homogeneous market which they are able to transact and build across.”

Digitalisation will help to bring scale

To the question of scale, Lynne feels that technology around digitalisation and identity authentication may be in a position to enable businesses and organisations in many of Asia’s populous economies to generate significant volumes and achieve much higher levels of efficiency and productivity. “The focus on leapfrogging technology in APAC, combined with having a strong footprint in the region will help us to address the challenge of scale.”

“A great example of the opportunity set that exists around digitization and technology is what we see around the flow of funds in India over the last year and a half since they did the digitalisation of registration The digital registration of the population has greatly increased people’s comfort with the financial sector and that has led to a large flow of funds into areas such as mutual funds,” he said.

He reasoned: “Finally, people feel secure that they have a digital identity and they’re taking their money from under the mattress – or gold – and they put it into a fund. It’s just an enormous amount of money. And, it’s not coming out of Mumbai, Bangalore or Calcutta, it’s coming out of the countryside. So, finally people feel secure that they exist.”

The importance of Asia Pacific

Lynne stressed that the transaction banking platform in Asia-Pacific is critical to delivering to its core global client segments, whether “our core German corporate clients, or core US west coast-based fund managers, etc.,” he said.

Meanwhile, Asia-domiciled large corporations have also become important. “The set of large Asian corporates is also increasingly becoming more internationalised in their business. We have the range of international products, country, technology and network to bank companies from all over the world. Only the very big money centre-cum-investment and commercial banks can do that.”

While he sees the current trade friction and tariffs between the US and China as a source of uncertainty and cause for concern, it will have longer term implications and impact on trade flows and supply chains. However, some short-term impacts can already be felt.

“The unravelling, changing or moving of global supply chains is complicated. It cannot happen in a flash. It will change some of the trade corridors rather than reduce the type of trade. We could already see that in some parts of our business. So, China’s clearly doing more direct trade with Russia on energy. So, that goes across cash, trade finance and foreign exchange. They are paying for things in renminbi (RMB). So, I think the south-south trade will expand,” Lynne elaborated