Deutsche CEO: West's Levies on Banks May Lift Asia's Role

Deutsche CEO: West's Levies on Banks May Lift Asia's Role. By ALISON TUDOR And PETER STEIN
WSJ, Jul 18, 2010

HONG KONG — Asia's already rising importance as a profit center for financial services could gain more momentum as governments in the U.S. and Europe levy new taxes on global banking profits, according to Deutsche Bank AG Chief Executive Josef Ackermann.

"The relative importance of Asia will even increase" as a result of regulatory moves against banks in the West, Dr. Ackermann said in an interview with The Wall Street Journal. "Asian countries would be well advised not to copy levies which are so popular in many other parts of the world."

The German bank's chief , who has become a prominent voice for bank interests in the wake of the financial crisis and heads the global lobby group Institute of International Finance, was in Hong Kong to attend the listing ceremony Friday for Agricultural Bank of China Ltd.

The levies cumulatively could translate into a substantial hit for lenders with branches in many countries, such as Deutsche Bank, which generates about three-quarters of its revenue outside of its home market, Dr. Ackermann said. Instead, he called for a home bias to the levies because the country of domicile was the one called on most to help out in the banking crisis.

Emerging markets could even take advantage of the backlash against banks in the West to grab market share in financial services, he said. "A lot of governments are determined, including the Chinese, to build up financial hubs at a time when other countries are more skeptical about the financial sector," he said, noting that Turkey and Russia are making similar advances.

Dr. Ackermann also warned that the war for talent in Asia is causing a bubble in bankers' compensation that is detrimental to the industry, even as he hired another rainmaker to keep business flowing.

Late Sunday, Deutsche Bank named Henry Cai its corporate-finance chairman for Asia as well as head of its corporate and investment bank in China. Mr. Cai is known as one of China's most consistent deal makers and is well-connected with the business and political elites in Beijing. He resigned from UBS AG in recent weeks as investment-banking chairman for Asia. It isn't known how much he will be making at Deutsche Bank.

Other senior banking executives in Asia complain that increasing competition for talent in the region is leading to excessive pay packages for bankers working in such areas as mergers and acquisitions and initial public offerings. Compensation, a key cost for banks, can cause serious problems for management when one division's or one region's pay is out of kilter with the rest. The buzz over bankers' pay in Asia comes at a time when governments in the U.S. and Europe are seeking to curb excesses that in recent years contributed to the worst financial crisis since the Great Depression.

"If the industry pushes compensation levels up by just poaching people from each other, in the long term it is not a sustainable model and not good for the culture of banks in the region," Dr. Ackermann said.

To combat this problem, Deutsche Bank has started recruiting more Asian graduates with the aim of steeping them in the bank's culture and later returning them to the region to run its businesses.

"It's not a short-term solution. It may take up to five years to see the first successes, but that is what we are working on," said Dr. Ackermann, who was also in Asia to give a speech at an International Monetary Fund conference in South Korea.

Like other banks weighing the prospects of the global economy, Deutsche Bank has made boosting its operations in Asia a top priority. "Europe's slow economic growth and the very competitive environment in the U.S. means Asia is a very attractive market, so it would be unwise not to do everything we can to be part of the market," Dr. Ackermann said.

The German bank is targeting four billion euros ($5.17 billion) in annual revenue from the Asian-Pacific region excluding Japan by next year, about double the amount it generated from the region in 2008.

Deutsche Bank already has a strong foothold, with operations in 17 Asian countries and over 17,000 employees.

Local regulators restrict foreign banks in ways that allow them to earn only about a third of their potential revenues, according to a recent report by consultancy McKinsey & Co., so the banks need to be careful not to compete in the same niches, such as high-profile underwriting deals in financial centers like Hong Kong. Deutsche Bank says only about 5% of its revenue in Asia comes from "public" deals such as initial public offerings.

One such deal that Deutsche Bank was involved in was the IPO for AgBank, which began trading Friday in Hong Kong. Clients like AgBank and Industrial & Commercial Bank of China Ltd., which Deutsche Bank also helped take public four years ago, are potential competitors as their business grows in scope and sophistication.

"I have no doubt [China's banks] want to first strengthen their domestic operations by moving towards more fee income then expand internationally gradually," Dr. Ackermann said. "We will also be confronted with stronger competitors coming from China."