October 28, 2021

DealBook: Deutsche Bank Posts a Profit and Agrees to Raise Its Capital Reserves

Anshu Jain, right, and Jürgen Fitschen, co-chairmen of Deutsche Bank.Kai Pfaffenbach/ReutersAnshu Jain, right, and Jürgen Fitschen, co-chairmen of Deutsche Bank.

8:17 p.m. | Updated

FRANKFURT — Deutsche Bank, Germany’s largest bank, moved Monday to address criticism that it has too thin a cushion against risk, announcing that it planned to issue $3.65 billion in new stock to increase its capital reserves.

The bank had earlier resisted the move, which was first booed and then cheered by the stock market. The company also said that its first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking.

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Since the 2008 financial crisis, banks have been under intense pressure from regulators to raise capital so they are better able to absorb shocks. Deutsche Bank has faced criticism for having too little capital compared with other banks its size.

The bank had been reluctant to issue new shares, which dilutes the value of existing equity, and instead sought to raise the ratio of capital to money at risk by selling assets or other measures. The bank did not immediately explain its change of course, but it is becoming increasingly clear that banks throughout Europe have little choice but to take steps designed to prevent future financial crises. Shareholders of Commerzbank, Germany’s second-largest bank, backed plans earlier this month to issue new shares.

“Banking has to become boring again,” Rüdiger Filbry, director of the German banking practice at the Boston Consulting Group, said during a meeting with reporters Monday, referring to the industry in general. “We expect significantly lower profits than we have seen in the past.”

Deutsche Bank's headquarters in Frankfurt. The bank said net profit in the first quarter was $2.16 billion, up nearly 18 percent.Hannelore Foerster/Getty ImagesDeutsche Bank’s headquarters in Frankfurt. The bank said net profit in the first quarter was $2.16 billion, up nearly 18 percent.

Deutsche Bank portrayed the share sale as the logical next step in a campaign to increase capital that began last year and has already made the bank safer. “Deutsche Bank ranks today amongst the best-capitalized banks in the world in our global peer group,” Jürgen Fitschen and Anshu Jain, co-chief executives of the bank, said in a statement.

Deutsche Bank, which has large operations in the United States, may also have been reacting to pressure from the Federal Reserve. The Fed has pressed foreign lenders to hold more capital at their local operating units to make sure that the American operations have the financial strength to absorb losses.

Banks also face a deadline to meet new global standards known as Basel III, which began taking effect this year. Deutsche Bank said the share sale and other measures would raise the ratio of capital to assets, as defined by the new rules, to 9.5 percent from 8.8 percent at the end of the quarter. That is comfortably above capital requirements that are being phased in through the beginning of 2019.

Deutsche Bank executives had earlier grumbled about the new rules, saying they were unnecessarily restrictive. Stefan Krause, the bank’s chief financial officer, said in a call with analysts in January that the rules “were really not very helpful in terms of helping global financial markets.”

On Monday, however, the bank said that it would issue 2.8 billion euros in new shares. The sale will increase the number of existing shares by about 10 percent and could reduce the size of the dividend that shareholders would otherwise receive. Deutsche Bank said it would sell the shares privately to institutional investors and would not sell them publicly.

Deutsche Bank shares fell about 2 percent in trading in New York before recovering and finishing up 3.7 percent, at $43.85.

Proponents of bigger capital buffers argue that they will ultimately benefit banks because the lenders will pay a lower risk premium to raise money on capital markets.

While Deutsche Bank avoided a direct government bailout — one of the few large German banks to do so — it continues to cope with fallout from the financial crisis as well as numerous legal scandals.

Those include a tax evasion inquiry that led to a raid on company headquarters in late 2012 involving hundreds of police officers who surrounded the bank’s high-rise headquarters in Frankfurt. Executives have also acknowledged that the bank could face additional lawsuits related to its sale of securities tied to the United States subprime mortgage market.

The German central bank is also said to be looking into accusations that Deutsche Bank hid billions of dollars in losses to avoid a potential bailout during the financial crisis. The investigation stems from accusations that Deutsche Bank understated the value of credit derivatives positions beginning in 2007 that were worth as much as $130 billion in so-called notional terms.

The bank has also been ensnared by the global investigation into rate manipulation. Last month, Deutsche Bank said it allocated an additional 600 million euros ($775 million) to cover its legal costs, a move that reduced its pretax profit for 2012 by the same amount.

News of the share sale initially overshadowed the bank’s earnings report. Net profit rose to 1.66 billion euros ($2.16 billion), up nearly 18 percent from 1.41 billion euros in the period a year earlier, Deutsche Bank said in announcing earnings a day earlier than previously scheduled.

Mr. Fitschen and Mr. Jain said in a statement that the earnings report “reflects the strength of our franchise in the face of continued regulatory challenges and cost efficiencies arising from our operational excellence program.”

Since taking over the bank last year, the two leaders have promised to cut back on risk-taking and address what they acknowledged were ethical lapses in the past. The bank said on Monday that it had reduced its assets, the total amount of money at risk, to 325 billion euros ($423 billion) at the end of the first quarter compared with 334 billion euros ($435 billion) at the end of 2012.

Much of the increase in profit came from cost-cutting. Deutsche Bank said it cut expenses not including interest by 370 million euros, to 6.6 billion euros.

Article source: http://dealbook.nytimes.com/2013/04/29/deutsche-bank-profit-rises-as-bank-plans-to-raise-new-capital/?partner=rss&emc=rss

Advertising: Ad Agency Goodby, Silverstein Opens a New York Office

AN advertising agency is rewriting a lyric of “New York, New York” to proclaim, “If I can make it anywhere, I’ll make it there.”

Goodby, Silverstein Partners, a leading agency with headquarters in San Francisco, is opening an office in New York. The office, temporarily located at 7 World Trade Center, gives Goodby, Silverstein, which was founded in 1983, a New York presence for the first time.

It is the agency’s second office outside of San Francisco, after one in Detroit that opened in 2010 as Goodby, Silverstein, which is owned by the Omnicom Group, began creating campaigns for the Chevrolet division of General Motors.

Two senior executives have relocated from San Francisco to lead the New York office, which will employ 15 to 25 people. They are Christian Haas, 39, who becomes partner and executive creative director, and Nancy Reyes, 37, who becomes associate partner and managing director.

The agency is occupying the temporary space while its permanent location, 200 Varick Street at Houston Street, is being remodeled. Plans call for an opening in April.

The office opens with work from current clients like Comcast, Elizabeth Arden, Google and YouTube. Goodby, Silverstein’s other clients include Adobe, the California Milk Processor Board, Cisco, Frito-Lay, the National Basketball Association, Nestlé and Sonic. Ms. Reyes and Mr. Haas say they are eager to look for new business in New York with the help of the agency’s co-chairmen and creative directors, Jeff Goodby and Rich Silverstein.

In the “Mad Men” era, only a handful of American ad agencies with heavyweight creative credentials were located outside New York, a city so widely regarded as the heart of advertising that the phrase “Madison Avenue” became shorthand for the industry.

That changed in the 1970s as the business began to decentralize, partly because the dire financial and quality-of-life problems in New York led many talented executives to pursue careers elsewhere. Agencies like Goodby, Silverstein became known almost as much for not being in New York — opting instead for cities like Austin, Tex.; Boston; Los Angeles; Miami; Minneapolis; Portland, Ore.; Richmond, Va.; and San Francisco — as for the ads they created.

Some of those agencies eventually added New York outposts. Some opened in New York but later retreated, and some still eschew New York. But declining to take a bite out of the Big Apple is becoming less appealing, primarily because New York has overcome the perception issues that once cost it so dearly.

“We just lose so many people to New York,” Mr. Goodby said in a phone interview last week from San Francisco. “It’s crazy not to access that.”

The executives who founded agencies outside New York did so to “kindle a ‘creative shop’ feeling,” Mr. Goodby said: a feeling they did not believe they could cultivate in a city dominated by giant, tradition-minded agencies. “I don’t think Rich and I felt we needed a New York office,” he said. “In fact, it was more unique to not have one.”

In his presentations to prospective East Coast clients, Mr. Goodby normally includes a slide that addresses why the agency has its headquarters on the West Coast. It reads: “You call it distance. We call it perspective.”

“I think I’m going to ask to have that slide retired,” he said, laughing.

Goodby, Silverstein was started as Goodby, Berlin Silverstein by three colleagues at Hal Riney Partners in San Francisco. The third founder, Andy Berlin, left for New York in 1992, three months after Omnicom acquired the 62.5 percent of the agency that it had not already owned, and he has spent the rest of his career there.

There was talk then that Omnicom would transform the agency into its third worldwide network, joining DDB and BBDO, in an expansion that would start with the opening of an office in New York. But a year later, Omnicom bought TBWA International, now TBWA Worldwide, and made that its third network instead.

“San Francisco is so livable, but there’s nothing like New York,” Mr. Silverstein said in an interview last week in Midtown Manhattan, at which he was joined by Mr. Haas and Ms. Reyes. “It’s a cliché, but it’s true. Go East, young man, go East.”

The executives acknowledge the risks of the move. They do not want other agencies to conclude that Goodby, Silverstein is trying to ride in like the cavalry to rescue Madison Avenue. “There’s nothing wrong with what’s going on in New York,” Mr. Silverstein said. “New York doesn’t ‘need’ another ad agency.”

Likewise, Ms. Reyes said, “there’s nothing wrong with what’s going on at Goodby, Silverstein in San Francisco.”

What became clear was that Goodby, Silverstein was losing prospective employees to New York. It was “less about them saying, ‘I’ve got to go to that agency in New York,’ than, ‘I want to be in New York,’ ” Mr. Silverstein said.

In fact, he said, a major reason he and Mr. Goodby finally decided to open an office in New York was that Ms. Reyes and Mr. Haas had confided that they wanted to move there.

Mr. Haas has worked in São Paulo, Brazil, in addition to San Francisco, but he has never worked in New York. “São Paulo is, in a weird way, kind of like New York,” he said, but “the energy, the buzz” of New York are difficult to duplicate.

Ms. Reyes worked at New York agencies like D’Arcy Masius Benton Bowles and Ogilvy Mather before leaving in 2003 to join Goodby, Silverstein.

In the last decade, “we lost lots of people in San Francisco to New York,” she said. “We’ll call on them.”

Article source: http://www.nytimes.com/2013/01/07/business/media/ad-agency-goodby-silverstein-opens-a-new-york-office.html?partner=rss&emc=rss