Deutsche Bank Has Good, Bad and Ugly with It

Unitech Sues Deutsche Bank

Unitech Sues Deutsche Bank
Unitech Sues Deutsche Bank | Source

Anshu Jain’s Wishful Thinking

Unitech Sues Deutsche Bank

Deutsche Bank is in the news recently. Unitech, the property developer from Delhi, has accused Deutsche Bank of selling an interest swap to it without explaining the salient aspects of it. It was a $150 million loan deal. Unitech is accusing that Deutsche Bank sold it an unsuitable hedging agreement. According to court documents, Unitech is arguing that Deutsche Bank owed damages to it that cancelled the debt itself. Earlier, Deutsche Bank sued Unitech for missing payments under swap contracts for over $11 million. Unitech is accusing Deutsche Bank that it made sizeable profits in the deal at its expense.

Banks Exploit Their Customers and Make Money

It is not the first time that a lawsuit has come with regard to an interest rate swap. In fact there have been many such lawsuits in the past alleging that such interest rate swaps proved to be dearer to the clients but profitable for the banks. But Unitech’s lawsuit is one of the largest in terms of amount involved filed in London. Banks should explain to their clients the risk involved in going for such interest rate swaps. In India, the home loan customers and other loan clients are exploited by the banks time and again with regard to interest rate. Banks charge higher interest rates suddenly without informing the customers and make a killing. Innocent borrowers are affected a lot. At least big clients like Unitech are able to file a lawsuit at exorbitant cost and drag the bankers to the court. But small clients cannot afford the cost of litigation and the time involved in it and prefer to take the suffering silently.

Largest Real Estate Investment

Deutsche Bank has appointed Alan Cloete and Gunit Chadha as its co-CEOs for the Asia Pacific region. Deutsche Bank is Germany’s largest bank. Anshu Jain has been appointed as CEO of Deutsche Bank, replacing Josef Ackermann. There is also a Board reshuffle on the cards. Deutsche Bank’s business in India has been a profitable one over the years. For example it made a 55% profit when it exited Lodha Developers. It was India’s biggest FDI (Foreign Direct Investment) in real estate sector amounting to Rs.1640 crore. Deutsche Bank made a return of Rs.900 crore from the investment.

BSE Sensex to Touch 18000?

Deutsche Bank organised some relaxation classes like salsa for its staff members. It issues workplace bonds and encourages desk yoga sessions for creating positive energy for its employees. Deutsche Bank has predicted that the BSE Sensex will touch 18000 by 2012 year end. Fitch has cut the ratings of Deutsche Bank along with Goldman Sachs and five other large banks. Fitch has cited increased challenges in the financial markets and policy momentum against employing taxpayer’s money to bail out banks as the reason for its decision. Other banks to suffer the cut were Barclays Plc, Credit Suisse AG, Bank of America, BNP Paribas and Citigroup. A letter bomb was sent to the Deutsche Bank chief Josef Ackermann recently. But the credit downgrade has caused more harm to Deutsche Bank than the letter bomb. Josef Ackermann retires from his job at the end of May and has refused to take up the Chairman’s post in the bank.

Anshu Jain’s Wishful Thinking

Anshu Jain is confident that the sovereign debt crisis plaguing European Union will be resolved soon. But I do not see any value in his statement. Europe has been mired in debt. Already Spain, Portugal, Greece and Ireland are in the bankrupt state. Italy is waiting next. The debt burden of Italy is much more than the combined debt of Spain, Portugal, Ireland and Greece. Greece has been provided with massive financial assistance twice in the past but it is begging its bowls for the third time. Even the supposedly strong nations in the European Union like France, Britain and Germany are struggling. Under the circumstances, Anshu Jain’s statement is only a wishful thinking.

Anshu Jain’s Wishful Thinking

Anshu Jain’s Wishful Thinking
Anshu Jain’s Wishful Thinking | Source

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Deutsche Bank Tops Bond Issues

Will Deutsche Bank Collapse Like Lehman Brothers?

Earlier, Josef Ackermann stated that the market conditions resembled the 2008 crisis. There is some truth in this statement. € 256 billion has failed to prevent the spread of the debt crisis in European Union. The collapse of Lehman Brothers Holdings Inc in 2008 deactivated the credit markets and forced the American and European governments to resort to using taxpayer’s money to bail out banks and financial institutions. Since July, € 5 trillion ($7 trillion) has been wiped out of stock market wealth. Many of the European banks will find it difficult to write down sovereign debts from their books and may collapse under pressure. Deutsche Bank may not become another Lehman Brothers and collapse but this statement is valid only for the time being. In future, if the crisis worsens, nobody can guarantee the existence of Deutsche Bank.

Learn German Language First

Anshu Jain succeeded in making Deutsche Bank as a debt trading powerhouse but he was not successful with equity play which could have countered effects of the Basel norms. Deutsche Bank is bullish on India as India is not affected as much as the European Union. Deutsche Bank earns much of its revenue in India from investment banking. Deutsche Bank is pruning its exposure in European Union and looking east for its growth. Anshu Jain has become the first non-European to become the head of Deutsche Bank. This is an achievement and is mainly due to his hard work and intelligence. But Anshu Jain is not fluent in German language. Sprechen Sie Deutsche? Learn the language with the proverb ‘Blumen fur damen ist immer richtig’.

Indian Operations Successful

In 2010-11, Deutsche Bank’s net profit from its Indian operations increased by 41% to Rs.630 crore. In 2009-10, the profit was Rs.446 crore. Total income jumped by 19% to Rs.2861 crore from Rs.2396 crore. Interest income was Rs.1880 crore and non-interest income was Rs.980 crore. During the financial year, Deutsche Bank also infused a sum of Rs.330 crore as capital into its Indian operations. Now the capital base stands at Rs.5500 crore. Deutsche Bank is one of the highly capitalised banks in India. Advances increased by 15% to Rs.14294 crore. Deposits stood at Rs.14646 crore. Deutsche Bank had a comfortable capital adequacy ratio of 15% because of its high capitalisation. Deutsche Bank had a net NPA of only 0.23%.

Deutsche Bank Tops Bond Issues

Gunit Chadha has been mainly responsible for Deutsche Bank’s profitable operations in India. At the end of 2009-10, Deutsche Bank had total assets of Rs.28331 crore. Its net worth stood at Rs.4945 crore. Return on assets has increased consistently from 0.7% in 2004-05 to 1.7%. Deutsche Bank operates in many niche areas in India. Deutsche Bank has led many mega bond issues in India for some big clients like Indian Oil Corporation ($500 million), SBI ($1000 million), Axis Bank ($500 million), SBI again ($700 million) and ICICI Bank ($1000 million). In the period 2005-10, Deutsche Bank topped the bond issues with a figure of $5662 million compared to Citi ($5090 million), BOA Merrill Lynch ($3844 million), Barclays Capital ($3191 million) and HSBC ($2182 million). In international bond issues also, Deutsche Bank topped with a figure of $1719 million in 2010.

Good, Bad and Ugly

Deutsche Bank has been helped by its strong global networks. Deutsche Bank has started recognising Indian talent now. It is concentrating on building systems in India. Deutsche Bank entered India 31 years back as part of a consortium that ran European Asian Bank. The Bombay branch of the bank started its operations in 1988. There have been many positive things and some negative things also associated with Deutsche Bank over the years. Recently US government has sued Deutsche Bank for committing fraud. What is the allegation of fraud? The US government says that Deutsche Bank selected mortgages recklessly and included it in a government insurance program. The lawsuit involves over $1 billion. One positive news about Deutsche Bank is that it has retained its position as the top recruiter in IIMs (Indian Institute of Management). It offered a salary of $285000 to $330000 for the student it hired for its London office.

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