Deutsche Bank: Greece must not regress on reforms

Greece should not sacrifice the credibility and discipline it has earned with such sacrifice in the past few years to short-term measures, warns Ashok Aram, Deutsche Bank’s regional CEO for Europe (excluding Germany and the UK), the Middle East and Africa, in an interview with Kathimerini.

Aram was in Athens for the takeover of Nikos Exarchos as DB’s chief country officer for Greece from Eleni Dendrinou, and appeared well aware of the situation in the country and the challenges that lie ahead.
 

Should Europe proceed with deepening its fiscal and banking union?

For Europe to continue to compete effectively with both the United States and emerging markets in Asia, it would make sense in our view to further deepen cooperation in its banking and capital markets framework, which could ultimately lead to the creation of a fiscal union as well. But you always have to ask the question: “what are the constraints?” One of the preconditions for a fiscal union would be to ensure that the individual member state debt-to-GDP ratios are sustainable, so that the risk profile of the European economies start converging. Over time, it would be important to pursue common taxation policies and a common European deposit insurance scheme that would develop the trust needed to remedy regulatory fragmentation. That could unlock the benefits of the Banking Union for the economy and European citizens.

DB seems committed to Europe.

We have always said very clearly that we want to be a European bank, with strong German roots operating internationally with a network in Asia-Pacific, the Middle East and Africa and the Americas. Nothing has changed in that core vision of Deutsche Bank. That’s the vision that we want to pursue. We believe in that because,

a) Germany needs a bank which can operate around the world and support its export oriented corporate sector, and b) European companies which operate internationally form a critical backbone of the economy. They need banking services to finance trade, payments and investment, and capital market access for new investors not only in Europe but also in the Americas, Asia-Pacific and Middle East and Africa regions. Also corporations and investors from these regions want to access the European Union, the second largest economic zone in the world, and to grow here.

Will you be considering another merger, after the one with Commerzbank was called off? 

At this stage our CEO has made it very clear that we will continue to work on our own plans to make the bank more profitable. DB already operates with a very strong balance sheet, our next step is to improve our operating profits – and we are on the right track. However, we have also said that in the medium term banking consolidation in Europe is necessary and to a certain extent is inevitable. So while strengthening our bank, we will continue to assess opportunities as they arise.

But your shares hit a historic low.

The share price is a reflection of the bank’s relatively low return on equity. So yes, we are profitable, but our return on equity has to go up further and as this improves, I am confident the share price will improve as well.

What are your plans for the Greek branch?

We have operated here for almost 40 years and our business model here will remain the same. We work very closely with the financial institutions in Greece, the central bank, the corporate clients, many of which operate internationally and we work with private individuals for their global needs. DB serves as a gateway for the clients in Greece to its global network, whether it is accessing a new market in Asia, raising capital through our capital market arms in London or New York, processing payment and clearing through Frankfurt or New York, whatever is the need.

Do your clients trust DB, in spite of its problems?

We are very lucky in Greece because all our clients are very sophisticated – banks, corporates, sovereigns, high net worth individuals – and they understand that beyond the odd headline this is a very strong and healthy bank. After declaring a profit last year and hitting our cost reduction targets, that has already changed the storyline and we now just have to consistently show and grow profitability, year after year.

How do you see the potential of the Greek economy?

Greece has done very well during its adjustment program in consolidating the banking sector and addressing the issues around nonperforming loans. During the last year, the credibility of the economy and the banking system was developing in the right direction and you could see that; Greece could access the global capital markets again, could refinance itself in the markets again, which were objectives of this program. Therefore it becomes critical that this discipline and credibility earned over the last two to three years is not sacrificed for any short-termist measures.

Are you concerned about the banking system, because of the high level of NPLs?

The macro credibility which has been achieved rightfully and in a hard way should be retained and strengthened, because it is a precondition for addressing further the NPL topic in Greek banks. They made a lot of progress but we know that the situation is still where Spain was four, five years ago. They have achieved a basic level of health and are expecting fund managers to come in, who are willing to absorb the assets. If banks can transfer these assets in a capital neutral manner, the banking sector gets more vibrant and has more capital to lend to new demands. The precondition for these investors to come in is a trust in the macroeconomic context. If that trust is lost, then capital doesn’t come in and then the NPL topic actually gets postponed. I hope that journey continues, because everything will move forward, but I can also see that if the discipline is dropped or credibility is lost, the problem will take longer and there will be less space for the banks to resolve these issues.