Deutsche Bank Should Turn DWS to Hunter From Prey

(Bloomberg Opinion) -- Now that it’s abandoned efforts to merge with Commerzbank AG, Deutsche Bank AG needs all of its businesses to do much better. So the first-quarter performance of DWS Group GmbH, the asset manager in which it has an almost 78 percent stake, will bring some welcome relief in Frankfurt – and suggest a mooted sale of the firm to a rival might be a mistake.

DWS said on Friday that it grew its assets under management by 6 percent to 704 billion euros ($784 billion) in the first three months of the year. That’s an important rebound after it lost assets in every quarter of 2018.

The 2.5 billion euros of net inflows handily outstripped the consensus among analysts for 200 million euros of new client money. It’s even more impressive given that Amundi SA, Europe’s biggest fund manager and one of the potential purchasers of DWS, suffered a second successive quarter of outflows, with clients pulling 6.9 billion euros from the Paris-based firm in the first quarter.

DWS’s passive products were the star performers. Inflows of 6.2 billion euros added to the 4 billion euros of net new money the asset class attracted in the final quarter of 2018 and cemented the firm’s position as the second-biggest player in Europe’s exchange-traded funds sector, with its Xtrackers range lagging only BlackRock Inc.’s iShares business.

The German asset manager’s cost-to-income ratio ticked higher in the first quarter to 71.4 percent from 70.9 percent in December, though it attributed that to lower revenue as expenses were trimmed by 2 percent. But targets for 70 percent by the end of the year and 65 percent “in the medium term” still look wildly extravagant compared with Amundi’s frugal 50.9 percent ratio.

The unanswered question remains whether Deutsche Bank is contemplating selling what it describes as a “core part” of its business. In October, it ousted Chief Executive Officer Nicolas Moreau who had steered DWS through its March 2018 listing, replacing him with Asoka Woehrmann, the former head of the bank’s retail unit. Woehrmann seems to have put DWS on the right track with regard to persuading customers to place more of their assets under its stewardship, although a bit more austerity in Frankfurt would not go amiss. And while one good quarter does not a full recovery make, he probably deserves more time to show his mettle.

“I don’t know if the group Deutsche Bank is willing or not to sell or disengage partly or totally from DWS,” Amundi Chief Executive Officer Yves Perrier said on Friday when asked about a potential takeover. But there may be a better way for the German bank to rebound from its takeover failure.

One of the motivations for listing DWS a year ago was to give it a “public currency” to participate in “the industry consolidation that we anticipated in the asset management industry,” Deutsche Bank Chief Financial Officer James von Moltke told Bloomberg Television on Thursday.

That consolidation hasn’t happened – yet. And a sale of DWS could trigger a bidding war. But there’s nothing that says Deutsche Bank can’t hang on to the firm while making good on its original intention for doing the IPO in the first place – by freeing DWS to become hunter rather than prey.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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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