Christian SewingThe bank has navigated choppy seas and is confident of weathering any turbulence with about ₹200 billion of liquidity.
Sewing tells MC
Govardhan Rangan, Bodhisattva Ganguly And
Saikat Das that the possibilities are less global Economy Will witness a decade of volatility, but India is expected to outshine most competing economies in this period of uncertainty. Edited excerpt:
A global recession appears imminent. And this Central bank in no mood to turn a blind eye inflation control. How do you see things going from here?
Our base-case is that we are now facing a year of pain, and the pain means that Europe and Germany will also go into recession. The first obvious reason is the effect of the war in Ukraine. In addition, we still haven’t gone through all the structural impacts from supply chain disruptions. And then, there’s inflation. So, we have lowered our GDP expectations. However, a recession is not a depression. We just need to get over it.
So, do you think it is important for central banks to stay in this direction and not panic?
Really, this is my opinion. We will have to go through a period of pain, but the sooner we fight inflation, the sooner we will come out of recession. Otherwise, you’ll get a pay-price spiral, which takes two or three years to go away and becomes dangerous.
“The transition to a green economy over the next 5-10 years will be characterized by disruptions. This means higher financing needs.”
Financial markets have become more volatile over the past few days due to the UK mess.
The UK is kind of a special situation, and I’m not good enough to judge either. But in general, as we said at our Investor Day earlier this year, we will be facing a decade of high volatility. This is not only because of the war in Ukraine, but the next five to ten years will be characterized by major disruptions to manage the transition to a green economy. This means higher financing needs in an environment of rising interest rates, which automatically leads to higher volatility.
Currencies and exchange rates are on a roller-coaster. What does this volatility in rates tell you?
In general, I believe in fundamental analysis of exchange rates and where economies are going. When you look at the EUR-US Dollar, for example, in the short term there is a possibility that the Euro will move slightly lower from where it is today, given the event risks in Europe. But in the long term, it will appreciate again. One reason is that the Fed will take interest rates down again at some point. Then you will see the flow back to the Euro. Therefore, over time, exchange rates are expected to normalize.
What is the possible worst case scenario?
The worst case scenario for me would be further escalation of geopolitical conflicts. The second significant risk is the prevailing inflation in developed markets. These markets are not used to dealing with high inflation and therefore, it is very important what the Fed and ECB are doing. We need to get that poison out of the economy.
“Leverage will come down overall. You can see it in the private equity sector, for example. Even some banks are reducing their books to lend. But, overall, banks We are well prepared, also because of regulatory changes after the financial crisis.”
As the tightening, there will be monetization. How does this affect financial assets?
Overall leverage will be less. For example, you can see this in the private equity sector. Even some banks are reducing their bookkeeping in terms of lending. But, overall, banks are well prepared, due to regulatory changes following the financial crisis. At Deutsche Bank, we have the strongest balance sheet and financial position since I have been with the bank, from a liquidity, assets and capital standpoint.
While slowdown in the developed world is a given, it may be different for emerging markets, especially India where there is a sense of decoupling. What is your assessment?
India is the powerhouse of Asia for me. I was involved in building our credit centers in Mumbai 15 to 20 years ago, so I have seen India grow over time – a development that this country can be proud of. Many other countries, especially those from Europe, are looking at India and see a real opportunity, for example, with respect to infrastructure investments.
So, does India have enough to attract capital?
There is always room for further improvement. But if I look around the world, India is a shining star. We want to invest and grow here. It is a vibrant market. Navigating the local operating environment requires experience, which we have honed over 42 years. The country is on the right track, and this is an opportunity for us.
“Our international private bank business here is well positioned for further growth… For me, India is our second home market.”
Like many global banks, Deutsche downgraded India’s operations into equity and retail. What is Deutsche doing now?
We have exited equity trading globally. But our international private bank business in India, which combines wealth management and a retail business for affluent and commercial clients, is well regarded and is well positioned for further growth. We are probably among the most profitable banks in the market in retail and among all foreign banks. Recently, we have launched our IBU in GIFT City, taking our presence to 18 locations in India. With 16,000 employees in India, we have the largest footprint outside our domestic market. So for me India is our second domestic market. We have a full-fledged bank in India, with global in-house centers in four cities, to support the bank globally in Operations, Technology, Finance, Risk, Legal and Human Resources from the country’s talented and well-known Take advantage of qualified workforce. In our Corporate Bank, Investment Bank and Private Bank divisions, we provide a complete set of banking services.
While many global companies are investing in India, we haven’t seen much from Germany or Europe. Why is this?
German corporates are looking for opportunities around the world. Where there are growth markets, German corporates also want to grow. They wonder how they can make sure their supply chain isn’t too concentrated. When I talk to CEOs of German corporates, I hear a lot of praise for India. In fact, within the European Union, Germany is India’s main trading partner and its sixth most important trading partner worldwide. If work is done to further accelerate the investment and permission to build factories, the investment will increase further.
Deutsche Bank has had a bumpy ride for nearly a decade, worrying regulators about the risks to the financial system. How are you placed now?
We are doing very well. In the first half of 2022, we achieved our highest profit since 2011. What is the strength of Deutsche Bank? There are four things. First, a clean balance sheet. Second, cost discipline. Third, we focus more on the business side and compete where we are good. We exited businesses where we were probably number 14 in the market and focused on areas where we are strong and where we can grow market share. The fourth factor is the most important: the pride of working for Deutsche Bank is back. We are in a business where you only have your customers and your people. Giving people glory back was the best accelerator for our growth.
Deutsche and others benefited from foreign corporate borrowings in EM. With the rate gap narrowing, what’s the outlook for that business?
First, the question is what matters to our customers, and that depends on their own business model. If foreign borrowing is a viable option, we are generally happy to support them – but always based solely on risk management. Therefore, we are also well prepared for the current changes in the interest rate environment. We will never allow a risk management approach that bases credit decisions on such financing only at historically low interest rates. Each client has to go through an individual scenario planning – that’s what we’re doing and that’s how we recommend our clients.
Former co-CEO Anshu Jain, who passed away recently, had seen both good and bad times.
Anshu’s passing was a very sad moment for us. I have rarely met anyone who impressed me with his intellectual brilliance and clarity. He was full of energy, integrity and a passion for Deutsche Bank. The bank is still benefiting significantly from some of the businesses they have built. Of course, mistakes have been made at that time, for example on the control side, but these mistakes were not made by just one person. I wish the general assessment of his tenure was more holistic.