Investment and Private Banking

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nExecutive Summary

nDeutsche financial institution is one of the leading private bank offering a raft of financial services across the globe. The bank concentrates on the high net worth individuals where the Bank provides wealth management services, giving its clients advises on assets management as well as providing personalized services. Deutsche Bank has achieved relatively excellent in terms of its customers, capital, competencies, costs and culture management. The bank just as in other sectors has strong competitors; this are UBS AG Company, COMMERZBANK, CITIGROUP and all are active players in the private banking industry. More millionaires are coming up but at a sluggish pace and, therefore, there is notable HNWI growth rate around the world with Asia-Pacific and North America leading the pack. Latin America performance draws a distinction with the progressive advancements of the Asia-Pacific and North America in the high net worth population and growth speed. Private Banks and Wealth Managers are being subjected to increased forces on costs, stringent regulatory demands and the need for extreme transparency. Technology has begun playing an important role in the private banking as well as wealth management, for long the industry has been known for its extremely tailored services. There is significant rivalry across the sector, with the wealth management arms of retail and investment banks contending with the more traditional private banks.

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nIntroduction

nIn the banking sector, there is a raft of services offered to clients one of them being the Retail finance that is widely acknowledged by people because it deals directly with average earning citizens (Wojcik and MacDonald-Korth 2015). The other term is customer banking or personal banking due to its visibility to the general populace. However, there is the other kind of investment which concentrates on the high net wealth individuals in the society due to the personalization and exclusivity associated with the services provided (Webb Cooper 2009, pp.253-264). Private and investment banking is among the services that Deutsche bank provides. The paper will seek to explore in depth the key features, the clients demands and characteristics, the trends and recent development in Deutsche Bank, and the risk management aspect that are being taken.

nOverview of Deutsche Bank

nDeutsche Bank is a German worldwide bank providing financial services with its head office in the Deutsche Bank Twin Towers in Frankfurt (Tahir Shahzad 2013, pp.62-68). The bank as a private bank it has over 100,000 staff members in more than 70 nations and has a vast grounding in Europe, Asia-pacific, the Americas and the developing markets. In the year 2009, the bank was the top foreign exchange player in the world with a market portion of 21%. Deutsche is perceived to be one of the utmost prestigious and influential banks across the global (Tahir Shahzad 2013, pp.62-68). The bank due to its global stature it has offices in most significant monetary centers like New York City, London, Chicago, Singapore among other many cities. The bank compromises services ranging from financial products and services for commercial and institutional clienteles along with private and corporate clients. The services involve trading, sales, research and origination of debt and equity (Stanley, Mackenzie Davey and Symon 2014, pp.270-287).

nDeutsche being a private bank does not mean it is a non-incorporated banking institution (Sharma and Carney 2012, pp.233-242). It provides investment, banking, and other various monetary services to clients on the high net worth status who have a high privileged cadre of income or invest big assets. The customers are catered to in a more personalized manner compared to what is witnessed in the mass-market retail banking, normally through devoted bank advisers. Deutsche forms a crucial, extraordinary level and a more exclusive subset of wealth management for the elite (Sharma and Carney 2012, pp.233-242). At least until lately, it primarily comprises of banking services like deposit transacting and payments, discretionary property management, limited tax advisory, brokerage and certain fundamental concierge type services, provided by a chosen relationship manager. The concierge type services are art storage, real estate setting and hotel and theater booking. An organizations private banking section offers services like wealth management, inheritance, savings and tax planning for their clienteles (Sharma and Carney 2012, pp.233-242).

nCurrent Performance of Deutsche Bank

nDeutsche Bank has performed quite well in terms of its clients, competencies, capital, costs and culture management (Webb Cooper 2009, pp.253-264). The bank serves a targeted portfolio of customers and regions based on its capability to produce value for them. Deutsche has aligned its management more closely to its customer. For example, the bank formed a devoted platform for Germanys small and medium-sized firms (the Mittelstand), increasing local coverage across areas and reinforced cross-divisional collaboration (Webb Cooper 2009, pp.253-264). On competencies, the bank has been more concerned about the strengths of its businesses. In 2013, the core activities provided sound operating profitability adjusted for particular items, the outcomes were nearly the best. That decent operating performance facilitating Deutsche Bank to minimize legacy items, push forward the reduction of risk and make investments to improve their operating platform (Webb Cooper 2009, pp.253-264)..

nThe Common Equity Tier 1 ratio of Deutsche Bank grew from 6% in June of 2012 to 9.7% towards the end of December 2013, and therefore being within their 2015 targets (Walter 2012, pp.114-122). During the same period, the bank also considerably scaled back its leverage exposure, and that is being based on Capital Requirement Directive IV rules (CRD IV). The Non-Core Operations Unit, which controls the decrease of assets from non-core business activities, brought a significant contribution to this de-leveraging. Through investments of about 4 billion euros, the bank looks forward to achieving yearly costs savings of 4.5 billion euros toward the end of 2015. Deutsche Bank has already produced amassed savings of 2.1 billion euros. The banks have made savings thanks to efficiency, elevating technology and streamlining the businesses (Walter 2012, pp.114-122).

nThe Deutsche Bank in 2014 achieved considerable progress in the implementation of its program that is being directed at reinforcing the interior control environment and protection against non-financial risk (Vitols n.d.). The bank has continued the expansion of its monitoring of potential transactions for social and environmental risk. The frequency of operations scrutinized grew to 1,250, up by more than 70% equated to 2013 and an 18-fold rise over 2011. In 2014, revenue before income duty rose to EUR 3.1 billion from EUR 1.5 billion as did net proceeds to EUR 1.7 billion from EUR 0.7 billion. Deutsche banks CRR/CRD 4 pro forma is being loaded Common Equity Tier 1 ratio towards the of 2014 was 11.7%, up from 9.7% to the close of 2013. The proposal for a cash bonus of EUR o.75 per share remains unmoved from 2013 (Vitols n.d.).

nCompetitors of Deutsche Bank

nUBS AG Company is one of the major competitors of Deutsche Bank. UBS is one of the worlds biggest private banks with businesses in over fifty countries (Tiwari and Buse n.d.). UBS as well offers asset management and investment banking, together with traditional banking services in its home base of Switzerland. The bank operates five transaction segments: Wealth Management Americas, wealth management, global asset management, retail and corporate, UBS Investment Bank. UBS as well gives advisories on structured borrowing and corporate finance (Schaeck and Cihák 2013, p.n/a-n/a). The next competitor is CITIGROUP Company, which people knows it as Citi. CITIGROUP is one of the top financial services banks with two hundred million client accounts and caters for customers across the world. The firm provides loans and deposits, wealth management, investment banking, brokerage and various other monetary services. However, Citi has been trading dozens of underperforming and noncore transactions in the outcome of the financial crisis to refocus on its original goals. COMMERZBANK Company is another strong competitor that has its base in Frankfurt, Germany, and has branches in fifty nations, with its core businesses in Poland and Germany. The bank funds about 30% of Germanys exports and is the loaning institution for medium and small enterprises in the country. In fact, it is the second biggest financial institution in Germany behind Deutsche Bank and boasts of fifteen million private banking clients (Tiwari and Buse n.d.).

nGrowth Rate of HNWIs around the World

nDeriving from the sectors biggest HNWI experience survey, the 2015 World Wealth Report there has been notable growth across the globe. Additional millionaires are emerging but at a slower rate (Nagarajan 2003, pp.205-220). Closely to one million people rose to the ranks of a millionaire in 2014, but, in 2015 the World report found that HNWI populace and affluence grew more modestly in 2014 compared to the past five years. Worldwide HNWI population and wealth are being extended at modest rates of 6.7% and 7.2% correspondingly in 2014, the second dawdling rates of the past five years. Precisely, the worldwide HNWI population rose by 6.7% in 2014 to 14.6 million, whereas the groups sum wealth grew by 7.2% to $56.4 trillion. That relates to growth rates in 2013 of 14.7% and 13.8, consecutively (Nagarajan 2003, pp.205-220).

nIn the HNWI growth, the Asia-Pacific and North America continents lead the other continents (Love and Martinez Peria 2014). The general upsurge in the global HNWI population was broadly being propelled by vigorous growth in North America and Asia-Pacific. Precisely, the report indicated that Asia-Pacific was the solely regions to overtake their five year that is from 2009 to 2014 yearly wealth growth rates in 2014 by 10.4% and 8.8%, consecutively. North America was aided by robust equity market performance of 10.3% compared to a worldwide average of 2.9%, whereas Asia-Pacific profited from the superior economic performance. Asia-Pacifics GDP progression, steered by the regions developing economies, reached 5.8% compared to 2.5% internationally (Love and Martinez Peria 2014). Asia-Pacific surpassed North America to become the area with the major HNWI population. Highest HNWI increases were being noted in Asia-Pacific population in 2014 and as projected, edged past North America to emerge the regional head in HNWIs (ANAND and GALETOVIC 2006, pp.151-199). Asia-Pacific is anticipated to continue in the lead. However, on the affluence front, North America remains to have the largest number of high net-worth individuals, but Asia-Pacific recorded the highest gain of 11.4% in comparison to North Americas 9.1%. At present having gone past North America in regards to HNWI population nevertheless, Asia-Pacific is as well projected to overtake North America in HNWI affluence in 2015 (Love and Martinez Peria 2014).

nThere are regions that are below par in HNWI growth and population rates in the world (Czyrnik and Klein 2004, pp.317-341). Latin America performance contrasted with the progressive performance of the Asia-Pacific and North America. It was the sole region to have declines in HNWI population at -2.1% and wealth at -0.5%. That was so because of a crash in goods prices and the resulting 14.8% drop in the Latin American MSCI index, conferring from the World report (Anzoategui, Pería and Melecky 2012, pp.42-57). Brazil was a specific encumbrance as it accounts for over 50% of Latin Americas HNWI wealth. Brazil brought down equity markets by 17.4% due to corruption and sluggish reforms in government leading to a drop of 6.4% in HNWI population and 1.4% of HNWI wealth (Czyrnik and Klein 2004, pp.317-341). Europe is retaining a comparatively slow and stable growth rate of about 4% for both HNWI growth and populace as its continuous economy sputter. Whereas the Western Europe economy rose by 1.3% in 2014, helped by enhanced performance toward the end of the year 2014, the equity markets in the majority of those nations decreased. That is resulting in HNWI population and affluence increases that were lower than the global average and lower than the annualized rate of the past five years from 2009 to 2014. Slow growth in Latin America and Brazil also inhibited the annualized five-year growth speed from 2009 to 2014 for Ultra-HNWIs worldwide (Czyrnik and Klein 2004, pp.317-341).

nCurrent Trends in Private Banking Market

nPrivate Banks and Wealth Managers are being subjected to increased pressures on costs, stricter regulatory demands and the need for maximum transparency (Godolja and Spaho 2014). Private Banks have enhanced their anti-money laundering frameworks over the years and put in place crucial policies, procedures to counter the vice. In particular, banks have made sure their customer relationship is strengthened to be able to understand a clients sources of wealth. The use of monetary intermediaries should also be well governed, especially where there is dependence on them to deliver customer due diligence. The board and top management have set the correct tone at the top and reinforce a strong and lasting control culture and risk alertness throughout their firm (Godolja and Spaho 2014).

nTechnology has begun playing a critical role in the private banking as well as wealth management, for long the sector has been known for its extremely personalized services (Malinconico, Frigerio and Leone n.d.). Lately, there has been a new development where more and more managers roll out progressive mobile banking and wealth management apps. The apps enable the investors to not only have easier access to accounts as they would with the typical retail financing, but also manage investments. Keep vigil on the market activities and hold video consultations with their advisors. Therefore offering the ability to transact online and have entrée to research and market commentaries. If handled in the correct manner it can improve the quality of service in the private banking sector because it offers insight into the clients preferences (Malinconico, Frigerio and Leone n.d.).

nCurrently, private banking pricing models are diverse there are some who choose the transactional model where the customer is not subject to any advisory costs at all (Maheshwari and Prasad 2014, p.191). The bank flourishes entirely on the commissions they gain by distributing third party products. Others follow a hybrid model where the costs are fixed for particular products and advisory fee for the rest while others are wholly advisory propelled and charge the customers a percentage of AUM. A small number of private banks offer both a transactional and advisory model. When pricing is on the basis of a value-based manner and segmentation in respect to customer specificities, it brings out transparency and all the while becoming less centralized. A recent industry trend is leaning to the advisory fee model because margins on commissions may drop in coming years (Maheshwari and Prasad 2014, p.191).

nCompetition in Private Banking Market

nThe growth of the wealth sector and their rising complex demands are compelling wealth managers to be vigorously responsive (Cull and Martínez Pería 2013, pp.4861-4878). There is significant competition in the industry, with the affluent management arms of retail and investment banks contending with the more traditional private banks. Globalization of affluence in the Asia-Pacific, Southern African and Eastern Europe is increasingly growing. Moreover, clients are becoming actively demanding, expecting only the best from their banks even in times of economic crisis (Behr, Norden and Noth 2013, pp.3472-3485). The competition is making the private banks deliver new services efficiently to have a competitive advantage. The banks are defining the margin between the premier and private banking so as to cater for clients in a streamlined way. The private banks are providing personalized services customized to customers exact needs (Cull and Martínez Pería 2013, pp.4861-4878).

n Deutsche Investment Banking

nThere is another kind of banking known as investment banking (Fohlin n.d.) in Deutsche Bank. Where the financial institution helps individuals, companies, and governments in adding up enough monetary capital through guaranteeing or stand-in as the customers agent in the issuance of securities. Deutsche investment bank may as well aid corporations involved in acquisitions and mergers and offers subsidiary services like market making, the transaction of derivatives and equity securities, and FICC services (fixed revenue apparatuses). Investment banking in Deutsche Bank does not take deposits like the retail and commercial banks (Fohlin n.d.). There are two core distinct lines of commerce in investment banking known as the buy side and sell side. The buy side facilitates advisory to institutions involved with purchasing investment services. Mutual funds, private equity funds, unit trusts, life insurance corporations, and hedge funds are the greatest common forms of buy side entities (Fohlin n.d.). The sell side is all about transacting securities for money or other securities like marketing making, enabling transactions or elevation of securities (guaranteeing, research).

nThere is an organizational structure related to core investment banking activities in Deutsche investment banking and is being divided into front, middle and back offices activities (FERNANDO, MAY and MEGGINSON 2012, pp.235-270). In a front office that is being referred to as revenue generating role, there are two core sections within it that is Investment Banking and Markets. Investment banking concentration is on advising the worlds prime corporations on mergers, acquisitions, together with a broad collection of fundraising approach (FERNANDO, MAY and MEGGINSON 2012, pp.235-270). While markets is being split into trading and sales, as well as research. The second part that is middle office is indulging in treasury management, internal corporate strategy and internal controls. Corporate Treasury is in charge of an investment banks financing, liquidity risk observing and capital structure management. Internal control follows and examines the capital liquidity of the corporate. Internal corporate strategy deals with corporate management and profit policy. Therefore, it is a non-revenue producing section but crucial within investment banks (FERNANDO, MAY and MEGGINSON 2012, pp.235-270).

nThe last part of the investment banking in Deutsche banks Back office is instrumental in terms of operations (Emory 2013). The principal function is to data check transactions that have already been made, with an aim of ensuring, there are no mistakes committed and executing the requisite transfers. In the Back Office, there is the technology team that majors in in-house software for the technical support of the bank in terms of electronic trading. That part of the department is also in charge of compliance with foreign and local government regulations (Emory 2013). Apart from the core investment, banking activities there are other businesses such as global transaction banking that is a division that offers fund management, loaning, custody services, and securities brokerage services to institutions. The next division is investment management involved in the specialized management of numerous securities (shares, bonds) and other properties (real estate), to attain particular investment targets for the advantage of investors. The last one is merchant banking that provides capital in exchange for share ownership rather than credits and gives advisory on policy and governance (Emory 2013).

nThere are various challenges facing the Deutsche investment bank one being responding to regulations (Corwin and Stegemoller n.d.). Banks worldwide are currently being confronted by difficulties in complying with numerous regulations that either is in progress, spanning for several years or propelled by local regulators. The cause of disagreement is this rules that are expensive complying with and brings confusion and panic to this financial institutions. There is also numerous financial crises plaguing the sector notable is the 2008 financial credit crisis that contributed to the downfall of various investment banks. Bankruptcy was evident in big investment banks like Lehman Brothers and the rushed auction of Merrill Lynch (Corwin and Stegemoller n.d.). The sector also has recently come under criticism for an alleged conflict of interest, middlemen like behavior, exaggerated pay packages among other economic vices. Cybercrime is another key challenge being faced by investment bankers. That is because the IT systems of banks are the prime targets for criminals who can easily manipulate the systems and transfer millions of pounds to diverse accounts by a tap of a keyboard. Therefore, there has been trends being realized towards improving the industry and make it even profitable (Corwin and Stegemoller n.d.).

nForward-looking financial institutions are weighing the opportunities on a future basis to gauge the effect that regulatory change will have on their transaction model and, therefore, adjust accordingly. For instance consolidation, outsourcing capital-intensive business procedures and increasing specialism (Bordes and Clerc n.d.). Deutsche Investment banking system is shifting from taking business decisions on the basis of the marginal cost of capital to transact, unlike the previous approach that was being based on apparent transaction profitability. Therefore, the new method brings information accuracy. The bank has actively been building reputation because of the dynamic terrain being witnessed to establish a stable market presence and safeguard their credit ratings (Bordes and Clerc n.d.). Investors have been viewed to reward banks that show favorable capital distribution prospects and castigate those that disappoint. From the start of 2015 Investment, banks are keenly recruiting stronger board executives who have comprehensive understanding of emergent operational risks, cyber risks, compliance and modern technological issues (Bordes and Clerc n.d.).

nConclusion

nThe Deutsche private bank offers a client together with the banker a chance to work more closely to determine investment priorities and retirement needs than in retail banking (Berzins, Liu and Trzcinka n.d.). That is because Deutsche private bank does not do the various banking business of opening checking and savings account. The private wealth management section of the bank has been able to deliver requisite advisory and guidance to wealthy individuals on how to look after their resources and invest wisely (Anand and Galetovic n.d.). However due to the enormous sum of funds involved issues of money laundering and terrorism financing are prevalent and so risk management ought to be key in the menu. The other part of Deutsche that is investment banking has become significant in helping persons, companies, and even governments by acting as their guarantor to secure funds. Just like the private banking, section developments are being done to manage risks and increase profitability (Anand and Galetovic n.d.).

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nReferences

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