Deutsche Bank and Dresdner Bank appear to be stepping in line with UBS in their strategic thinking for the post-merger private banking opera...

Deutsche Bank and Dresdner Bank appear to be stepping in line with UBS in their strategic thinking for the post-merger private banking operation. The banks’ plan to hive off retail operations and concentrate on private banking and investment banking as their core strategy is a significant departure in style for both players.

Both Deutsche Private Banking and Dresdner Private Banking developed from the banks’ upscale retail operations. Within the European market, at least, the retail bank was absolutely central to their referral strategy for private banking clients. In the new strategy, the banks will need to seek greater synergy between investment and private banking. The move is therefore not dissimilar to UBS’s plans to integrate international private banking into UBS Warburg. This strategy offers significant advantages for tapping the international entrepreneurial market and the increasingly significant onshore clients. As with UBS, there will also be a distinct asset management division and a strong emphasis on Internet delivery to capture the affluent market as a secondary referral source.

With a market capitalisation of EUR480 billion and assets of EUR1.245 trillion, the new Deutsche Bank clearly has the potential to be an international investment banking powerhouse. In recent years, Deutsche Bank has developed significantly in this area and is arguably the strongest of the European players. In the new strategy, this will have tremendous benefits for the private bank.

Not so under the old structure, under which, both banks lagged behind their international private banking competition. Deutsche had the larger private banking network, with around 100 international offices. Although it has sizeable private banking branch networks in Italy, Spain, Belgium and most recently in France, the strategy of relying on the retail business for referrals has been cited as a weakness in developing the business outside of Germany. The acquisition of Bankers Trust in 1998 could be seen as a watershed for Deutsche’s private bank in terms of leveraging investment banking expertise. Dresdner is a much smaller international player and only recently started to develop its onshore capability in Europe. Last year, Dresdner Bank Luxembourg acquired Veer Palthe Voute Capital Asset Management in the Netherlands. Dresdner also bought into the Italian market via stakes in Albertini & Co. and Gestioni. Prior to these recent deals, Dresdner’s international strategy was purely offshore, with “centres of excellence” in Frankfurt, Switzerland, Miami, and Singapore, as well as London and the Channel Islands, via Dresdner’s acquisition of Kleinwort Benson.

In spite of its relatively small size of the Dresdner private banking operation, the combined private banking force will be headed by Dresdner’s global head of private banking, Joachim von Harbou. This may well reflect the concerns of Dresdner’s chief executive Bernhard Walter, who ruled out the merger with Deutsche in January due to concerns that it would not be a merger of equals on the private client front. The reasons for this concern are now clear, given that private banking is to be central to the merger partners’ strategy. In the longer term, however, it seems inevitable that Deutsche will dominate the partnership.

The deal has also prompted further speculation of German bank tie-ups. Commerzbank is said to be in talks with HSBC Group. Meanwhile, HypoVereinsbank has been linked with Bank Austria.