New Deutsche Bank Chief Faces Overbanked Landscape

Although Deutsche Bank is probably the country's best-known banking institution outside Germany, the bank's role in domestic consumer banking is not the monopoly its name might imply.

Finding the path to a mightier status for Deutsche Bank will be the primary challenge for the company's incoming chairman, Josef Ackermann, who starts his new job in Frankfurt on Wednesday.

He faces daunting hurdles in a business landscape where Deutsche Bank must compete in an oversaturated financial services market against thousands of state-supported Sparkassen, or savings banks, and Genossenschaftsbanken, or cooperative banks, for customers.

An oversaturated market

Sparkassen are as important for most Germans as private banks says Professor Wolfgang Gerke, who heads the Department of Banking and Stock Exchanges at the University of Erlangen-Nuremberg. He says that between the two types of institutions, there is a chronic oversaturation of the German banking industry - at least compared to the Anglo-Saxon world.

"Germany is overbanked and it has a very special conditions in the banking sector," he says. "There are the Sparkassen savings banks owned by the state, there are the Genossenchaftsbanken, and these two types of banks are very successful in the country. Sometimes they have nearly achieved a monopoly in smaller towns."

"It's therefore difficult for the Deutsche Bank and other banks like Dresdner and Commerzbank to be profitable in the regions where the Sparkassen are successful," he says. "The only possibility for change is to close some branches and to concentrate on profitable activities."

A painful reorganization

Ackermann has said that his first goal as chairman will be to double Deutsche Bank's market value. He also wants to reverse a decision made a few years ago to split the bank into two key operating units -- Deutsche Bank Investment Banking for a better-off clientele and Deutsche Bank 24 for most retail customers.

"It makes no sense to have two Deutsche Banks, one for poor people and one for rich people," Gerker says. "For sure you will have different kinds of clients and you will have different services for them, but you don't have to tell everyone. It was a mistake to create 24, and now the right way will be to be one Deutsche Bank with different clients."

Inevitably, Mr. Gerke says, this will lead to more job cuts.

"Deutsche Bank has to reduce the staff, and it might be nearly 10,000 people losing their jobs at Deutsche Bank," he warns.

"It's a very new policy. In the past, you could be sure that you wouldn't lose your job at Deutsche Bank if you were doing something very dreadful," he says. Now, the company will shift to American-style hire-and-fire personnel policies, especially in the investment banking field."

All eyes are on Ackermann

Many are looking to Ackermann to bring needed reforms to the Frankfurt-based bank. The selection of the 54-year-old raised eyebrows in the banking community when it was announced 20 months ago because Swiss-born Ackermann is the first foreigner to lead the bank, one of Germany's hallmark brands.

Still, industry observers fear that, charismatic as he may be, Ackermann's proposals are overly ambitious. He has said he wants to implement cuts that will save the bank 2 billion euro ($1.85 billion) a year, but he must do so against a background of slack retail banking, a loss of interest by many retail investors for share investments and this month's renewed downgrading of the bank by a leading rating agency.

As Ackermann himself recently joked, if he does not achieve his goals by the end of his first year at the helm, "Deutsche Bank might not speak German any more."