A number of banks are doomed to fail if they don't adapt to the new realities of the finance industry, says IMD Business School's Arturo Bris.
LAUSANNE: Deutsche Bank caused a recent stir with the seemingly sudden announcement that it would cut 18,000 jobs – one-fifth of its global staff.
It is part of a reorganisation designed to return the bank to its core business of corporate banking, private banking and asset management. Most of the job losses will be in the global equity traders and investment banking division.
Some may read the bank’s problems as the result of a bad strategy, bad execution, bad luck, or a combination of these three.
I, however, think that the German bank’s problems reflect the profound transformations currently taking place in the financial industry in general, and in investment banking especially.
Let me start by saying that the value of the financial industry is not easy to justify in terms of social and economic benefits. It is true that banks perform a useful function of redistributing financial risk, allocating capital and providing credit. But there are too many banks, and what is even worse, there are too many bankers.
Looking at the case of Deutsche Bank, between 2009 and 2018 the bank lost US$14.8 billion in market value (including dividends paid to shareholders).
This is the total value loss, with some ups and downs. In 2016 the market value of Deutsche Bank dropped by almost US$27 billion, while in 2017 it grew by US$21.5 billion.