(Bloomberg Opinion) -- Deutsche Bank AG’s big shrinkage plan runs to more than 4,700 words over 47 pages. Apart from a few passing references sprinkled throughout the announcement, the document devotes just half a page and 115 words to the asset management business specifically. That feels like a missed opportunity.
Germany’s biggest bank still owns about 80% of DWS Group GmbH after the fund manager’s initial public offering in March last year. The division is still Deutsche Bank’s most profitable and is expected to remain so in coming years. It expects to make a return on tangible equity of at least 20% by 2022, compared with the 8% target for Deutsche Bank as a whole.
DWS, though, has had to trim its ambitions for growing assets under management. Its initial target was for net new money inflows of 3% to 5% annually. After clients pulled money in every quarter of 2018, even a 6% rebound in the first three months of this year leaves the business expecting growth of just 2% to 3% for 2019 as a whole, according to the restructuring plan.
If Deutsche Bank is serious in its stated aim of growing DWS into one of the world’s 10 top global asset managers, organic growth will be insufficient. With 704 billion euros ($788 billion) of assets, it doesn’t even make the top 15.
The 10% drop in Deutsche Bank’s stock price since the revamp was unveiled shows how skeptical investors remain about the lender’s ability to execute on a plan that will see 18,000 jobs go and cost 7.4 billion euros. So it needs its fund management business to sparkle.
For that to happen, DWS needs to bulk up. Talk earlier this year that UBS Group AG was considering a plan to combine DWS with its fund unit before spinning the pair off as a separate entity has helped to fuel a 32% rally in DWS’s shares this year. It appeared that the Swiss bank was willing to let Deutsche Bank control enough of the venture to allow it to continue consolidating the unit’s earnings rather than just its dividends, at least at the outset. Other mooted suitors include German insurer Allianz AG, which could combine DWS with its Pimco business, and Amundi SA, currently Europe’s largest independent asset manager with about $1.7 trillion of assets.
But as I wrote in April, the point of listing DWS last year was to free it to make acquisitions using its shares as currency. And in June, DWS Chief Executive Officer Asoka Woehrmann said playing an “active role” in the long-awaited consolidation of the fund management industry was a “personal ambition.”
Even as it shrinks its banking footprint, the fund management division is the one part of Deutsche Bank that needs to grow through acquisition. If it wants to achieve its ambitions for DWS, the German lender needs to free the business to embark on a shopping spree. Otherwise, the dream of joining the trillion-dollar club of top 10 asset managers will remain just that – a dream.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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