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Deutsche Bank may gain from wealth mgt shakeup

Source: Reuters - Thu 1st Oct 2009

A shakeup in the German wealth management market, driven by distressed sellers and new tax evasion measures, may have created a one-off chance for Deutsche Bank AG to bulk up in the lucrative field.

Forced to shore up their balance sheets in the wake of the credit crunch, European banks are overhauling their businesses and in some cases shedding wealth management assets.

In Germany this has turned Commerzbank AG, the country's second-largest bank which last year swallowed Dresdner Bank, into a seller.

This year it sold two Swiss-based wealth management units and Munich-based Bankhaus Reuschel. It has also put private bank Kleinwort Benson on the block and is prohibited from making acquisitions until April 2012 as a precondition for accepting a state bailout.  

Because of the number of sizeable franchises being sold and the fact that some rivals are in difficulty, Deutsche Bank has an "unrepeatable opportunity" to grow its wealth management business through acquisitions, analysts at Main First Bank AG said in a recent note to investors.

Deutsche has already got its foot in the door at blue-blooded money manager Sal. Oppenheim, which was forced to turn to Deutsche to help bolster its balance sheet in August.

Deutsche provided a loan to Sal. Oppenheim and is now in talks about taking a stake. A full takeover of Sal. Oppenheim would increase assets under management at its private wealth management unit - now about 171 billion euros ($251.4 billion) - by about half, WestLB analyst Georg Kanders said.

Wealth management assets coming onto the market in Germany and elsewhere are a relatively easy and attractive way for banks to reduce their dependence on volatile earnings from investment banking, analysts say.

While the outlook for investment banking remains murky as regulators hammer out new rules to avoid a repeat of the financial crisis, the market for wealth management is relatively simple and poised for moderate but stable growth.

The financial wealth of high net worth individuals - people with more than $1 million in investable assets - is set to grow to $48.5 trillion by 2013 globally, from $32.8 trillion in 2008, according to the most recent World Wealth Report by Capgemini and Merrill Lynch.

Among the 8.6 million wealthy individuals around the world - who in 2008 had an average fortune of $3.8 million each - 810,000 reside in Germany, according to the report.


Although there are no official figures, private bankers say many wealthy Germans have in the past taken their money to Switzerland, which offered an attractive tax and regulatory environment as well as client confidentiality.

But a recent push to clamp down on tax evaders has led to the introduction of stiffer penalties for evaders combined with greater investigative powers for authorities. This has made it less attractive for wealthy Germans to take their money abroad.

Customs authorities on the German-Swiss border have even trained sniffer dogs to smell bank notes rather than drugs and explosives.

An environment of weakened rivals and a changing political landscape "hands a home player advantage to large domestic banks like Deutsche", WestLB's Kanders said.

Deutsche's wealth management unit, headed by Swiss executive Pierre de Weck, lags rivals UBS AG and Credit Suisse Group AG in terms of size.

While wealth management has over the past couple of years accounted for at least 40 percent of group profits at UBS and Credit Suisse, Deutsche's wealth management unit hasn't been a key driver of earnings.

Deutsche's asset and wealth management division, of which private wealth management is a unit, made an 85 million euro pretax loss in the second quarter. At group level it made a 1.3 billion euro pretax profit in the quarter.

As banks continue to restructure, more wealth management assets will likely come onto the German market this year, creating an opportunity for Deutsche.

Delbrueck Bethmann Maffei, a German bank owned by ABN AMRO with about 15 billion euros in assets under management, could be put up for sale this year, Main First said. ABN AMRO declined comment. 

Commerzbank's UK-based Kleinwort Benson private bank has about 7 billion pounds ($11.2 billion) in assets under management and Kleinwort Benson Offshore has about 20 billion pounds under management, analysts at Main First said.

Deutsche has its hands full absorbing Deutsche Postbank and is in talks with Sal. Oppenheim, but Chief Executive Josef Ackermann has signalled the bank will move aggressively to take opportunities to expand at home.

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