Chastened Deutsche Bank plots more moderate course

Germany’s biggest lender Deutsche Bank was slapped $14.2 billion fine demand over its role in the US subprime mortgage crisis, but managed to negotiate the penalty to a lower $7.2 billion. (AFP)
Updated 08 October 2017
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Chastened Deutsche Bank plots more moderate course

FRANKFURT: As it emerges from years dogged by scandal, Germany’s biggest lender Deutsche Bank aims to up profitability and reclaim a place on the global stage to rival giant American competitors.
But the bank warns profits will never again reach the risk-fueled heights of the pre-financial crisis era as it grinds through a deep restructuring, adjusts to new rules and adds thousands of jobs in regulatory compliance.
Deutsche “absolutely does not want to take unconsidered risks as it did in the past” as it girds itself to reconquer what it can of the lost ground, compliance chief Sylvie Matherat told AFP in an interview.
Its newfound strictness about financial regulation means the bank is “on track” to restore confidence among clients, she said.
Already, this autumn is far calmer for the Frankfurt-based group than last year’s.
Back then, the United States Department of Justice slapped it with a $14.2-billion fine demand over its role in the subprime mortgage crisis, the trigger for the 2008-09 financial crisis.
Clients rushed to withdraw their cash from Deutsche’s investment banking and wealth management arms, fearing it might finally go bust.
It could have been the last straw for the lender, which had pumped itself up into a global giant hoping to take on American mega-banks on equal footing since the 1990s.
In the end, Deutsche survived after bosses negotiated a cheaper — but still painful — deal to pay $7.2 billion in the US.
Unlike US competitors, Deutsche was slow to react to the financial crisis, and “should have begun cleaning up its balance sheet earlier,” said former Bank of France regulation chief Matherat, who joined Deutsche in 2014.
British chief executive John Cryan has chosen a path of reducing risks in its investment banking division, closing 200 branches across Germany and slashing some 9,000 jobs worldwide.
Even once those mammoth tasks are ticked off, “returning to pre-crisis levels of profitability isn’t possible,” warns Matherat.
Deutsche basked in pre-tax return on equity of up to 25 percent before the crisis — although that was on a much less solid capital foundation than nowadays.
Two years of stinging losses and a string of capital increases later — the last for €8 billion in April — post-tax return on equity stood at just 3.2 percent by the end of June 2017.
Analysts expect nothing better from the bank in the third quarter, after a summer of muted activity on the financial markets where Deutsche still makes most of its revenue.
The lender ought to aim for the same ball park as its biggest rivals, which “have set objectives of around 10 percent net return on equity,” Matherat judged.
Shareholders have been hurt by a 7-percent fall in the stock’s value since January, and are impatient to see the bank on a profitable footing — just another factor putting pressure on the board.
Before thoughts turn to driving up the bottom line, Deutsche has buttressed its risk control department, an expensive but vital bulwark that helps boost confidence among clients.
Matherat’s division will grow to around 3,000 people by the end of 2018, spread between Frankfurt, Hong Kong, Singapore, London and New York.
The figure is 500 more than originally called for in the bank’s plans.
“We will apply a simple rule: everything we can’t check up on will be forbidden,” she insisted.
Deutsche hopes to have a system up and running by the end of the year to track client interactions from the first phone call to the final payment.
“Of course checks slow business down a little, but the important thing is for people to internalize them as if they had come up with them themselves,” Matherat said.
She believes that Deutsche can be one of the world’s leading banks, but only if Europe and Germany can overcome their distrust of investment banking.
The EU is still working through the legacy of the crisis, including a planned capital markets union designed to make it easier for companies in member states to raise money in a single financial marketplace.
But if the Old Continent does not overcome its distrust of investment banking, the scheme “could be most beneficial to the usual American suspects while leaving big European banks, including ours, behind,” Matherat said.


Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

Updated 23 March 2019
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Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

  • Firms under pressure to explain how greener laws will hit business models

PARIS: The five largest publicly listed oil and gas majors have spent $1 billion since the 2015 Paris climate deal on public relations or lobbying that is “overwhelmingly in conflict” with the landmark accord’s goals, a watchdog said Friday.
Despite outwardly committing to support the Paris agreement and its aim to limit global temperature rises, ExxonMobil, Shell, Chevron, BP and Total spend a total of $200 million a year on efforts “to operate and expand fossil fuel operations,” according to InfluenceMap, a pro-transparency monitor.
Two of the companies — Shell and Chevron — said they rejected the watchdog’s findings.
“The fossil fuel sector has ramped up a quite strategic program of influencing the climate agenda,” InfluenceMap Executive Director Dylan Tanner told AFP.
“It’s a continuum of activity from their lobby trade groups attacking the details of regulations, controlling them all the way up, to controlling the way the media thinks about the oil majors and climate.”
The report comes as oil and gas giants are under increasing pressure from shareholders to come clean over how greener lawmaking will impact their business models.
As planet-warming greenhouse gas emissions hit their highest levels in human history in 2018, the five companies wracked up total profits of $55 billion.
At the same time, the International Panel on Climate Change — composed of the world’s leading climate scientists — issued a call for a radical drawdown in fossil fuel use in order to hit the 1.5C (2.7 Fahrenheit) cap laid out in the Paris accord.
InfluenceMap looked at accounts, lobbying registers and communications releases since 2015, and alleged a large gap between the climate commitments companies make and the action they take.

 

It said all five engaged in lobbying and “narrative capture” through direct contact with lawmakers and officials, spending millions on climate branding, and by employing trade associations to represent the sector’s interests in policy discussions.
“The research reveals a trend of carefully devised campaigns of positive messaging combined with negative policy lobbying on climate change,” it said.
It added that of the more than $110 billion the five had earmarked for capital investment in 2019, just $3.6bn was given over to low-carbon schemes.
The report came one day after the European Parliament was urged to strip ExxonMobil lobbyists of their access, after the US giant failed to attend a hearing where expert witnesses said the oil giant has knowingly misled the public over climate change.
“How can we accept that companies spending hundreds of millions on lobbying against the EU’s goal of reaching the Paris agreement are still granted privileged access to decision makers?” said Pascoe Sabido, Corporate Europe Observatory’s climate policy researcher, who was not involved in the InfluenceMap report.
The report said Exxon alone spent $56 million a year on “climate branding” and $41 million annually on lobbying efforts.
In 2017 the company’s shareholders voted to push it to disclose what tougher emissions policies in the wake of Paris would mean for its portfolio.
With the exception of France’s Total, each oil major had largely focused climate lobbying expenditure in the US, the report said.
Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.
AFP contacted all five oil and gas companies mentioned in the report for comment.
“We disagree with the assertion that Chevron has engaged in ‘climate-related branding and lobbying’ that is ‘overwhelmingly in conflict’ with the Paris Agreement,” said a Chevron spokesman.
“We are taking action to address potential climate change risks to our business and investing in technology and low carbon business opportunities that could reduce greenhouse gas emissions.”
A spokeswoman for Shell — which the report said spends $49 million annually on climate lobbying — said it “firmly rejected” the findings.
“We are very clear about our support for the Paris Agreement, and the steps that we are taking to help meet society’s needs for more and cleaner energy,” they told AFP.
BP, ExxonMobil and Total did not provide comment to AFP.

FACTOID

$ 28m

Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.