Deutsche Bank's plan to jettison much of its German retail bank
|English: Deutsche Bank Towers in Frankfurt am Main, Germany Slovenčina: Mrakodrapy (na obrázku dva mrakodrapy Deutsche Bank AG), utvárajú obraz mesta (Photo credit: Wikipedia)|
Deutsche Bank's plan to jettison much of its German retail bank and withdraw from one in ten countries sees it join a growing list of banks choosing to shrink and simplify to survive.
The benefits of size and reach, for years considered the holy grail of global banking, are now viewed as being outweighed by the cost and complexity of running businesses across dozens of countries.
Many bank bosses have given up on trying to offer everything to everyone. But as unwinding years of expansion proves difficult, pressure for action has intensified, from politicians who show little patience with institutions they consider too big and complex and investors wanting more return on equity (RoE).
"The underlying economics for banks ... means being all things to all people is too big a burden to sustain," said Bill Michael, head of financial services in Europe at consultancy KPMG. He cited low RoEs, high operational risk and hefty potential costs from regulation.
After missing financial targets and racking up a string of regulatory fines and problems, Deutsche Bank said on Monday that it would sell retail arm Postbank, take a knife to its investment bank and exit seven of the 70 countries in which it operates.
On Friday HSBC's bosses responded to investor criticism over misconduct scandals and weak profitability by emphasising how far they have shrunk and streamlined the bank in the past four years. HSBC has already sold or shut 77 businesses and could yet dispose of big operations in Brazil or Turkey.
Credit Suisse's incoming CEO Tidjane Thiam is expected to cut trading operations drastically and pull back from other areas, while Barclays chairman John McFarlane signaled on his first day on Thursday that he will also wield the knife.
The message is clear: bold action is on the cards to create leaner and simpler models, even after big cuts in recent years at Barclays, Credit Suisse, Citigroup, Morgan Stanley, UBS and Royal Bank of Scotland.
"NOT A SCRAP OF EVIDENCE BIGGER IS BETTER"
Pressure for banks to downsize has intensified since the global financial crisis, which was preceded by a frenzy of mergers and acquisitions of the kind that briefly made RBS one of the world's biggest banks.
The Bank of England's chief economist, Andy Haldane, said in 2009 that "there is not a scrap of evidence of economies of scale or scope in banking -- of bigger or broader being better".