Unlock Editor’s Digest for free
FT editor Roula Khalaf picks her favorite stories in this week’s newsletter.
Deutsche Bank has cut spending on outside consultants by 70 percent at its private bank as the division works to boost profitability after a badly botched IT project last year.
Under new private bank chief Claudio de Sanctis, who replaced Karl von Rohr a year ago, the division has drastically cut back on outside advisers and ended projects that included Boston Consulting Group (BCG) and other professional services firms, according to people familiar with the details. The unit has cut its consultant spending by a double-digit million-euro amount, the people added.
“Working with external consultants can be seen as the easy way out,” de Sanctis told the Financial Times: “If you have a problem, call a consultant to solve it for you.”
“We have to bring our expertise.” . . to solve our recurring problems ourselves,” he said, adding that lower consulting budgets are here to stay.
Private bank Deutsche has long been struggling with high costs and weak profitability. While it generated 33 percent of the lender’s revenue in 2023, it was responsible for just 19 percent of pre-tax profit.
Over the past few years, every euro of revenue generated by a private bank has included around 80 cents in costs. In early 2022, von Rohr promised to reduce that to 60 to 65 cents by 2025, but the cost-to-income ratio remained at 81 percent by the end of last year.
The private bank employs 38,000 of Deutsche’s 90,000 employees and is responsible for its German retail banking operations, including the Postbank brand, as well as asset management.
The division has relied on external advice in the past, with Bain & Company leading the restructuring of its retail banking business in 2017 and BCG recently playing a leading role in developing a digital investment platform for retail customers. This project, codenamed Vestivity, was started under von Rohr, but de Sanctis canceled it this year. BCG declined to comment.
At the end of 2023, De Sanctis embarked on a cost-cutting drive with plans to close up to 250 of Postbank’s 550 remaining branches.
This year, the lender struck a deal to close branches with Germany’s powerful service sector union Verdi. “The benefits of structural cost reductions will be visible from 2025,” de Sanctis told the FT. “This should bring our cost/income ratio to a level that allows us to reinvest more incremental savings back into our wealth management business as well.”
It noted that its division’s cost-to-income ratio fell 1.4 percentage points year-on-year in the first quarter of 2024, partly due to lower spending on consultants and travel.
“We delivered results on the cost side in the first quarter, which is great especially given the huge inflationary pressures,” he said. The private bank’s revenue fell 2 percent year-on-year between January and March, while costs fell 4 percent.
The bungled migration of 12 million Postbank customers to Deutsche IT systems last summer was costly and embarrassing. The bank initially claimed the project was a success. However, thousands of customers had their accounts blocked for weeks and customer service centers were overwhelmed.
The problems meant more than €100 million in additional costs for Deutsche. The bank was also publicly reprimanded by the financial regulator BaFin, which dispatched a special monitor.
“We believe there is a culture change and increased focus on improving returns in the business under the new leadership of the private banks,” JPMorgan analyst Kian Abouhossein wrote in a note to Deutsche this month. He added that rising profits in retail banking and wealth management will make the bank less exposed to unpredictable investment banking returns.