Deutshe Bank Downsizes Its Foreign Presence
Written by Josephyne King
Three weeks ago, Deutsche Bank announced its plan to eliminate 7% of its workforce and downscale its operations in the United States and Asia. Deutsche Bank is not the first to drawback efforts abroad. Many banks have faced decreased margins and falling loan demands since the financial crisis of 2008. Deutsche Bank in particular was hit hard by the crisis, as it faced billions of yen in fines related to fraudulent activities that helped lead to the crisis.
In the last 4 years, 3 other foreign banks have cut or scaled back operations in Japan and Asia: Citigroup Inc from the United States, Macquarie from Australia, and Barclays from the UK. Citigroup was the first to pull back operations. 4 years ago, it sold its retail banking operations to Sumitomo Mitsui Banking Corporation. The deal totaled 1,600 employees and 32 different branches across Japan. 2 years later, Macquarie downsized. It cut 30 equity positions in Asia, which was 8% of its workforce at the time. Barclays was last; it cut positions in equity research, sales and trading across Japan. What Barclays has done differently, though, is expanded efforts in other divisions: investment banking and market operations.
6 months ago, Barclays started ramping up hiring in Japan. Unlike its previous downsizing, this expansion was only happening in the investment department and market operations. The bank hired 10 new employees, a 33% increase from its workforce the year before. Kiso, the President of Barclays Japan, expanded efforts due to the increase in Japanese foreign investment. He says that many more Japanese banks are turning to investments, mergers and acquisitions abroad, a result of the negative interest rates introduced by the BOJ. Whether or not other institutions will follow Barclays depends on how successful it is. One new challenge facing them would be the FSA, who has started warning about the riskiness of foreign investment.
Particularly, the FSA has issued a warning to regional banks. Due to the rising yields of US bonds, many current investments held by Japanese institutions are becoming riskier. The FSA has warned regional banks to curb foreign investments, and has stated that unrealized losses from foreign sources should not exceed core-business profits. Regional banks in particular can be hurt by this risk, as many of them are in uncertain business positions within Japan. Earlier this year, the FSA named 10 different banks that were losing money on foreign bond investments.
So far, no similar warning has been given to Japan’s national banks. However, the riskier foreign investments become, the more that banks are in danger of losing even greater profits in an already diminishing industry. While Barclays may have signaled a return of foreign institutes to Japan, it may take a while for others to follow suit, especially after their recent exit.
Sources:
NY Times
https://www.nytimes.com/2018/05/24/business/dealbook/deutsche-bank-jobs.html
Straits Times
https://www.straitstimes.com/business/macquarie-said-to-plan-cutting-about-30-equities-jobs-in-asia
