Anshu Jain Speech (Deutsche Bank)

Speech by Anshu Jain
Co-Chairman of the Management Board and the Group Executive Committee
Deutsche Bank AG
Wirtschaftsrat Deutschland, Economic Conference 2012
12th June 2012, Berlin
– Check against delivery –
Lieber Professor Lauk: ich bedanke mich herzlich für Ihre Einladung. Sehr geehrter Herr Minister Schäuble, sehr geehrte Damen und Herren: ich fühle mich sehr geehrt, heute vor Ihnen zu stehen – dies besonders als Co-Chef der Deutschen Bank. Ich möchte Ihnen auch herzliche Grüße meines Partners, Jürgen Fitschen, überbringen.
Seit fast zwanzig Jahren ist die Deutsche Bank mein Leben und mein Zuhause. Wie Sie aber merken, arbeite ich noch an der deutschen Sprache und muss diese Zeilen ablesen. Ihr Englisch ist besser als mein Deutsch ... also erlauben Sie mir bitte, jetzt ins Englische zu wechseln.
[Dear Professor Lauk: Please accept my most sincere thanks for extending this invitation. I am honoured to be standing before you today, especially as the co-head of Deutsche Bank. I also bring warm wishes from my partner, Jürgen Fitschen.
Deutsche Bank has been my life, and my home, for nearly 20 years. But as you can see, I’m still working on my German and must read these lines. Your English is better than my German; so now, please allow me to switch to English.]
For my long-time friend and colleague Jürgen Fitschen, and for me, this honour comes with enormous responsibility. This is one of the most challenging roles in world banking, particularly in this environment.
This evening, Professor Lauk asked me to talk with you about three themes: first, the outlook for the global economy; second, to offer my perspective on Europe and Germany; and third, the future challenges, opportunities and priorities for the banking industry, and for Deutsche Bank.
Turning first to the global economy. Let me start with the United States - the original centre of the current crisis. The US accounts for a quarter of the world’s economy, so events there are felt around the globe.
Since the U.S. housing bubble burst, in 2007, the U.S. has experienced an exceptionally intense crisis. Home prices have fallen by more than a third from their peak; that alone wiped out over $6 trillion of household wealth – that’s equivalent to almost twice the size of the German economy. The U.S. also suffered its worst banking crisis since the 1930s; the manufacturing base has steadily eroded in recent years, and unemployment more than doubled.
The government responded with massive intervention: authorising up to a $700 billion bail-out for banks and over $800 billion in fiscal stimulus. This prevented a much deeper crisis, and revived the economy. But it left a big debt burden behind, largely financed by surplus savings in Asian economies, especially China. The U.S. debt burden is much bigger than the Eurozone’s. It will need to be addressed in the future.
And this begs the question: how has the U.S. differentiated itself from other mature economies? Because this is such a dynamic economy. It is open to new cultures. It is socially mobile. It has world-class educational institutions. Result? It dominates some key industries. Google, Disney and Apple are highly innovative global brands. 70% of Apple’s profits come from products which did not exist five years ago. Furthermore, emerging market growth has actually benefited U.S. industry. Unemployment is still high, but it has fallen. Additionally, technological advances in oil and gas drilling have opened up huge new reserves to U.S. energy producers. This gives U.S. industry a potentially significant cost advantage over companies in Europe or Asia. North America could become energy independent within the next 15 to 20 years – which would be very positive economically. All this leads me to believe that the mid-term prospects for the U.S. economy are favourable – but let’s bear in mind that the debt burden may have longer-term consequences.
Now Ladies and Gentlemen: let me pass to the other side of the world, and say a few words about Asia.
A brief word about Deutsche Bank in Asia. We first followed our clients into Asian markets back in the 1870s. More recently, we maintained our commitment to Asia right through the crisis of the late 1990s. Our Asian clients remember that. We now have offices in most Asian countries. Of course, Asian economic growth is still very strong – that’s well known. But for me, the important point is to understand the moving trends beneath the headline. The infrastructure investment ‘boom’ is maturing, as Asian economies rebalance. But the process of urbanisation will be ever more important. Over the next 20 years, the number of city dwellers in China and India will rise by 600 million – the equivalent of two U.S.A.’s. Domestic consumption will be powered forward by a fast-growing, urban middle class: by 2030, the number of middle class consumers will grow by 3 billion worldwide – the majority in Asia. Of course, there are many challenges in Asia: inflation; and demographics; and combining growth with political stability, solid governance, and social justice. But opportunities continue to be tremendous – for you, and so for us. And now – let me come back to Europe – the region of greatest importance to all of us and which is facing a very significant challenge. European integration is the greatest peace project the world has ever known. Europe has rarely known 70 years of peace before. The common market, and the common currency area, have created unprecedented prosperity for Europeans. They ensure that Europe continues to be relevant on the world stage; that’s important for future generations. But it is globalisation which really forces us to integrate. No single European country can hold its own against the U.S.A., or China. To succeed, we must integrate further. But today we’re at a crossroads. We are living through the most severe financial crisis since the birth of modern Europe. The outcome is still to be decided. There is no doubt in my mind: Europe can recover, and emerge stronger, from this crisis.
 Three weeks ago, while travelling in the U.S., I was struck by the number of people who questioned me about the need for ‘austerity’ in Europe. ‘After all’, they argued: ‘deficit spending was effective in the U.S., so why would it not be for Europe?’ My response to them was clear: I don’t believe that deficit spending is the right path for Europe. To advocate a policy of ‘austerity’ is, simply, to have the courage to recognise reality. Choosing between growth and austerity is a false choice – and one that no one can afford. Certainly, scope exists for the right growth measures, such as structural reform of labour and pension markets; liberalisation in key industries; investments in infrastructure.
 Crucially, we have made good progress toward the ‘institutional strengthening’ which the Eurozone so badly needs. The European Central Bank acted decisively to mitigate risk in the financial system, by ensuring flows of liquidity. The fiscal compact is a vital step toward fiscal alignment. And we have built up very important, pan-European defence mechanisms, or firewalls – such as the European Stability Mechanism. Action this weekend in support of Spanish banks is yet another example of a well-orchestrated response to what had become a source of great concern for us all. We are stronger than we were a year ago.
 Interestingly, financial markets have been sending a very strong, pro-austerity message for quite a while. Since last summer, investors in European sovereign debt markets have echoed this message, which is also Germany’s position: there is no way forward, except deficit reduction. Neither can core Eurozone countries be expected to finance the deficits of their neighbours indefinitely.
 In summary: thanks to decisive action from the ECB and progress on the fiscal compact, we have managed to avoid a systemic event in Europe thus far. But Greece will hold new elections in 5 days. Risks remain; a systemic event would have significant and long-lasting consequences – not just for Europe, but for the whole world. The stakes are high.
Now for a perspective on Germany.
 It is clear that Germany is in a strong position. Industrial output has powered ahead. Exports have boomed. Unemployment has fallen to one of its lowest levels since re-unification. Public finances are sound. And markets have rewarded this success. Germany can borrow at historically low interest rates, saving billions of Euros per year in interest costs. Even at times of stress – in fact, especially at times of stress - the model of the soziale Marktwirtschaft has proved itself. As a result: Germany has acquired a position of unprecedented leadership and influence. All eyes are on Germany.
 It has not been an easy road. As recently as a decade ago, implementation of ‘Agenda 2010’ was challenging. As in the Eurozone today, growth was weak and unemployment was high. Flexibility was critical – for employers and employees. Sacrifices were made. But Germany realised that delivering structural reform, and keeping fiscal discipline, was the only path to lasting recovery. Today, we see the rewards of that discipline.
 Unlike the US and the UK, Germany has maintained its manufacturing edge. Manufacturing still accounts for over 20% of Germany’s economy – almost double that of some other mature western markets. It was world-class manufacturing that turned Germany into a ‘globalisation winner’. Often, I used to wonder: how did Germany do it? In other mature economies, manufacturing was shrinking. Competing with the emerging markets was tough ... what made Germany special?
 Friends and colleagues all told me: the difference was because of many of you here today: the Mittelstand. As I prepared this speech, I looked for an English translation for the word Mittelstand. I found out that there isn’t one! That tells me that you are a phenomenon unique to Germany. You are, truly, the “hidden champions” – the backbone of the German economy. You are two-thirds of the workforce, and over half of the German economy. You focused on technology, innovation, and quality. You dominate many industries. Today, you export a large part of your output and are truly global institutions.
 Deutsche Bank, of course, has globalised with you. To serve you, our German clients globally, we needed to build a truly global network, and a truly global team. I, for example, was born in India and have lived and worked in the UK and the U.S. 10 nationalities are represented on our Group Executive Committee, for example American, Austrian, South African, Australian and Canadian. Deutsche Bank has people from 150 countries on its staff – and yet remains deeply rooted in Germany. Our global team is a direct result of your global needs.
To capture Germany’s potential, and contribute to a successful recovery for Europe, three forces must be aligned: world-class industrial performance; the right economic policy; and effective functioning of capital flows, financial markets, and the banking sector. For this, it is imperative that business leaders, bankers and political leaders work together. Let me put it simply, Ladies and Gentlemen: we are all in this together. Now let me come to my final theme: the banking industry. Where have we come from; where do we stand today; and how do I see the bank of the future? Let me start back in 2008.
2008 was a watershed year: for the industry, for Deutsche Bank, and for me personally. This was the most intense banking crisis since the 1930s, perhaps ever. Let me state clearly: the industry made mistakes which contributed to this crisis.
Our risks were too high, relative to our capital; we expanded beyond our core business; we had risk management challenges.
We learnt our lessons. We reduced risks and built up our capital. However, some banks still had to be rescued by the state. Deutsche Bank, in all humility, did not – although we did benefit, like other market participants, from systemic measures which were taken. Nevertheless regulatory tightening was inevitable.
The regulatory response represents a formidable challenge for our industry, and hence for you, our clients, as well.
 First: higher capital and liquidity requirements. We want to put capital to work for you, at a reasonable cost. More capital makes banks safer; but stricter capital requirements also make capital scarcer and more expensive for you. The same goes for liquidity requirements. They reduce returns, and that slows down capital formation.
 Second: challenges to the ‘universal’ banking business model – by this I mean the integration across retail banking, asset management and wholesale banking. This model originated in Europe and has worked successfully in Germany and around the world. It proved to be more resilient during the crisis. And it provides you with the services you need to operate in an increasingly complex world. Universal banks have the resources to finance your expansion; to help you manage risks from foreign exchange or interest rates; to provide cash management and trade finance products that enable you to operate globally. We can do this more safely, and at a lower cost for you, than if you had to go to many different banks for each different service. Despite these advantages, the debate about universal banking has started in some countries, and we expect this debate to come to Germany as well. We, at Deutsche Bank, remain committed to the universal banking model, and we need your support in this debate.
 Third: maintaining the level playing field. We want to serve your interests across the world. To do that effectively, it’s crucial that we play by the same rules as banks from other countries, as we do now... Germany is one of the world’s largest and most successful economies. It needs and deserves to be served by a world-leading bank. If Germany’s only truly global bank cannot play on a level playing field, is that in the interest of German industry? I don’t think so.
Against these challenges, there are some opportunities as well:
 First: consolidation in, and concentration of, the banking industry. There are far fewer global banks than there were five years ago and we believe that given the difficult macro and regulatory environment, only a handful of strong global banks will exist in the future. These banks will have the best value proposition for employees, shareholders and clients. We aim to sustain our position as one of these, in order to serve you in the best possible way.
 Second: advances in technology enable us to serve you better, faster and cheaper. Last year, for our transaction banking clients, we carried out 1 billion transactions in the areas of payments, cheques and trade finance. And for private clients, our integration of Postbank enables us to create a single operating platform. That brings important technology efficiencies.
 Third: emerging market growth is an opportunity for those banks with a well-established network across key emerging markets. We seek to tailor our services to the needs of local clients.
 Finally: Germany. We believe German industry will continue to outperform. That means growth, and internationalisation. My view – and that of Jürgen Fitschen - is that we can, and want to, do more to serve you, support your growth and help you manage risks. Against this backdrop...what does a successful ‘bank of the future’ look like? I believe it will have several decisive characteristics:
 First: it should be deeply anchored in a strong home market with sound public finances. Five years ago, it seemed as though banks floated above their national roots. But it is now more important than ever, and we are lucky to have Germany as our home market.
 Second: balance sheet strength: healthy capital and liquidity levels, a robust funding base, and good risk management.
 And third: a diverse business model – geographically and across products. A bank which is both global and universal clearly has an advantage. Earnings streams are more stable. The business is more balanced. The offering to clients is stronger. Now, finally, a few words about Deutsche Bank. As Jürgen Fitschen and I go about preparing for the future, we do so with a keen appreciation of the Bank’s history. Our predecessors built a bank with the essential foundations of the ‘bank of the future’. They acted globally, long before the word ‘globalisation’ was ever heard. Let me pay tribute to three of many:
 Hermann-Josef Abs ensured that we could support the reconstruction of German industry, and thus laid the ground for the Wirtschaftswunder of the post-war period;
 Alfred Herrhausen saw, in globalisation, the need not just for commercial but also moral leadership: helping people in developing countries. He saw that providing access to the world’s capital markets would be vital for you, our clients. To deliver this vision, he led the acquisition of Morgan Grenfell, although he never lived to see his vision completed;
 And most recently, Josef Ackermann, under whose leadership we cemented our position as a truly global bank - and who, with the acquisitions of Postbank and Sal. Oppenheim, reinforced our ‘universal’ banking business model, and anchored us more deeply in our home market. Jürgen and I feel gratitude and respect for the work of all our predecessors. Safeguarding their legacy is a responsibility we feel very deeply. However, we in the banking industry must also face up to the biggest challenge of all: renewing our contract with society. The contract between banks and society was broken during the crisis. Banks are now viewed with suspicion. That’s understandable. We have to work harder to prove our activities are safe. Put simply, banks have fallen from grace. We must restore your trust in us. Ladies and Gentlemen: let me conclude. We are committed to working with you, to face up to common challenges, and seize common opportunities. For 140 years, we have supported the success of German industry – however, and wherever, we could. We are determined to sustain that proud tradition.
Und wenn ich noch einen Satz auf Deutsch wagen darf... Herr Minister Schäuble: es war mir eine Ehre, vom gleichen Podium wie Sie zu sprechen. Lieber Professor Lauk, nochmals herzlichen Dank für diese Einladung. Meine Damen und Herren: danke für Ihre Zeit.
[And if I may venture one more sentence in German...Minister Schäuble, it was an honour to share this podium with you this evening. Dear Professor Lauk, thank you again for your kind invitation. Ladies and Gentlemen, thank you for your time.]