Deutsche Bank - International Financial Management

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INTERNATIONAL FINANCIAL MANAGEMENT

Interim Report

Sector: Banking Company: Deutsche Bank

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Group No. 1

Kanika Kashyap 2015280 Ashank Ajay Gupta 2015327 Shelly Biswas 2015371

European Banking Industry:

The year 2015 brought a moderate rise of +1.1 % in lending to the private sector for the first time since 2011. Households lending went up by 2% as compared to 2014 whereas lending to businesses remained stable. Despite the prevailing low interest- rate environment, the volume of deposits from firms and households rose by 3.3 %, an increase similar to past two years results. After a rise of total assets during first quarter of Eurozone banks a slight decline was observed with a fall of 1.3 %. As the provisions for credit losses continued to decline it led to a further normalization in the earnings situation. The household and corporate lending in Germany continued to expand, with growth again exceeding the Eurozone average. An increase in consumer loans by 1.9% was one of the contributors of this growth experienced by Germany.

The credit expansion continued in U.S., which was mainly driven by corporate lending and commercial mortgages, with double-digit growth rates. On the other hand the retail segment, residential mortgages grew by 2.5%, whereas in private-sector deposits slowed somewhat compared with 2014 but at 4.9%, remained high.

A moderate decline in lending growth to 2.3% was recorded in Japan. Despite the slight cooling off of the Chinese economy the low double digit growth in private sector lending remained unchanged.

About Deutsche Bank:

Headquartered in Frankfurt am Main, Germany, Deutsche is one of the largest financial institutions in Europe. As of December 31, 2015 total assets measured of the bank are € 1,629 billion. As of that date, the company employs 101,104 people on a full-time equivalent basis with its operations in 70 countries out of 2,790 branches worldwide, of which 65 % are in Germany. The bank offers a variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients across the globe.

The bank is organized into the following five corporate divisions:

• Corporate Banking & Securities (CB&S)
• Private & Business Clients (PBC)
• Global Transaction Banking (GTB)
• Deutsche Asset & Wealth Management (Deutsche AWM)
• Non-Core Operations Unit (NCOU)

From 2016 in accordance with their Strategy 2020 business operations are going to be organized under a new structure with the segments Global Markets (GM), Corporate & Investment Banking (CIB), Private, Wealth and Commercial Clients (PW&CC), Postbank, Deutsche Asset Management (AM) and Non-Core Operations Unit (NCOU). Some of operations or dealings with existing or potential customers in most countries across the globe includes subsidiaries and branches; representative offices; and one or more representatives assigned to serve customers.

Financial Strategy of Deutsche Bank:

Deutsche bank maintains liquidity in the form of balance with the Central bank and other financial institutes, tradable assets, callable loans, short term and long-term debt. Their debt structure consists of bonds being both short and long term. As of now, Deutsche Bank long-term bonds have a AAA- and short term bonds an A2 rating from Moody’s after being downgraded recently.

Currently the bank has a non-trading market risk that uses economic capital worth 12.9 billion. This includes risk arising from Foreign exchange fluctuations and interest rate risks. Foreign exchange exposure arising from un-hedged capital and retained earnings in non-euro currencies in certain subsidiaries. Our economic capital usage was € 3,183 million as of December 31, 2015 on a diversified basis versus € 2,672 million as of December 31, 2014. The increase is largely caused by the appreciation of the US dollar against the Euro, as Euro is the currency Deutsche Bank reports in.

Future Outlook of the Strategy:

The future goals of the above-mentioned strategy are

• To become simpler and efficient by focusing on the markets, products and clients to increase client satisfaction.
• To become less risky by modernizing our technology and withdrawing from higher-risk client relationships.
• To become better capitalized.
• To run Deutsche with more disciplined execution.

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Risks Involved:

• Macro-economic and market conditions

If the growth prospects, the competition in the financial services industry and interest rate environment worsen compared to the expectation in the companies outlook, this would adversely affect their business, results of operations or strategic plans.

Elevated levels of political uncertainty and increasing attractiveness of voters to populist parties in a number of countries in the European Union can lead to a partial unwinding of European integration. Also, anti-austerity movements in some member countries of the Eurozone might undermine the confidence in continued viability of those countries’ participation in the euro.

An escalation of any form of political risks can have unpredictable political consequences affecting the financial system and the greater economy at the same time, potentially leading to declines in business levels, write-downs of assets and losses across the banks businesses. The banks ability to protect themselves against these risks is limited.

If the sovereign debt crisis reignites the company may be required to take impairments on their exposure to the sovereign debt of European and other countries. The credit default swaps into which Deutsche bank has entered to manage sovereign credit risk may not be available to offset these losses as anticipated.