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Morning Coffee: Deutsche Bank's Plan B if Commerzbank fails. Lloyd Blankfein, the devoted Dad

It’s hard to call it “Plan B”, since there were quite a few abandoned strategies for Deutsche Bank before the Commerzbank merger ever started being taken seriously.  But ignoring pedantic points about what letter ought to be given to the back-up plan in case the Commerz deal doesn’t go through, it’s pretty clear that Deutsche needs one.  By no means all of the shareholders are in favour, the German government has given it no better than lukewarm support, the labour unions absolutely hate the idea and key regulators do not appear to be convinced that the merged group would have enough capital once all the assets are written down to fair value.  So if not Commerzbank, then what?

According to the usual source of, “people familiar with the matter”, Christian Sewing’s team are considering two potential options, after pressure to do so from key stakeholders.  They could either revert to the original cost-cutting plan that Sewing was brought in to deliver, perhaps with a bit more chopping away of red meat at the investment bank.  Or they could carry out “a bigger strategy shift, that would create upfront costs”.

There aren’t so many details on the second, more radical option, but it’s reasonable to speculate that what’s being referred to is euphemistic for a complete removal and shutdown of investment banking operations, with Deutsche returning to its German corporate banking roots.  That would indeed create upfront costs – it would involve selling all the legacy portfolios for whatever they would fetch, as well as redundancy costs for thousands of staff and lease terminations for dozens of of floors of the world’s most expensive office space.  Shareholders might have to put up quite a lot of new money to finance this sort of idea.

But where would it leave DB?  German corporate banking is neither an intrinsically profitable industry nor necessarily well-placed cyclically.  German retail banking is even worse, and it’s hard to believe that such a major upheaval would leave the asset management business undamaged. A radical strategy like this would effectively mean tripling down on the already sizeable bet on payment services. Here, Deutsche has a good franchise, but by no means a world-leading one when compared to the real giants like Citi and HSBC.  It’s hard not to suspect that if this alternative is being presented to shareholders, it might be for the purpose of illustrating to them that the Commerzbank deal might not be so unattractive after all.

Commerzbank, on the other hand, appears to have a wealth of alternatives if Deutsche turns out to be unable or unwilling to execute the deal.  ING have already shown their hand as a potential alternative suitor and Unicredit are widely rumoured to also be interested.  Unlike Deutsche, Commerzbank could walk away from this deal and see their share price hold up.  Meanwhile, Germany’s biggest bank still has to deal with the issue that’s never been addressed since Paul Achleitner first made the idea public – none of their problems are really caused by not being big enough, and it’s hard to see how any of them would be solved by getting bigger.

Elsewhere, Lloyd Blankfein continues to seemingly have all the fun that he might have missed out on while shepherding Goldman Sachs through the financial crisis.  He doesn’t have a post-Goldman job yet, he’s able to respond to awkward questions by claiming (somewhat unconvincingly) “I try to avoid paying attention to banks”, and yet he’s still well-known, well-liked and rich enough to be invited to all the best parties and the focus of attention once he’s arrived.

Instead of talking markets, Lloyd was working the room most recently at the Jazz At The Lincoln Centre gala to promote his daughter’s start-up business – a range of low-carb drinks mixers sweetened with extract of monk fruit.  The former CEO is apparently “not in a steady state” yet and anticipates that “eventually, I’ll find other things to do”, but at present a life of philanthropy, occasional cheeky comments on social media and listening to Harry Connick’s band while helping to pitch for his daughter seems to be keeping him busy enough.  We would wish him good luck, but he seems to be pretty well blessed with that already.

Meanwhile …

When your best office friend leaves – whether it means losing a mentor, protégé, partner in crime or the other half of a dynamic team – it can be genuinely painful.  This article mainly refers to friendships in journalism, but close relationships in banking can, if anything, be even stronger. (FT)

If you’ve ever wanted to live in a hedge fund baron’s palace in Greenwich, Connecticut, now might be the time to buy.  Local property taxes are beginning to weigh and the super rich are getting new options in Manhattan, leading to a glut of luxury houses on the market as Greenwich locals look for smaller (although still incredibly expensive) properties (Fin24)

It’s a governance problem that basically couldn’t be solved and is about to come to a head on May 2 – given the size of the family shareholding, Schroders could hardly deny Leonie Schroder the board seat that her father Bruno had occupied until his death.  But given her lack of industry experience and qualifications, proxy advisors like Glass Lewis could hardly do other than recommend that other shareholders vote against it. (Financial News)

The husband of singer Adele – and potential recipient of a divorce settlement of up to half of her $200m of assets – used to run a trading desk at Lehman Brothers (The Times)

If your fund is performing well and has been closed to new investors since time immemorial, you aren’t subject to the same pricing pressure as the rest of the hedge fund industry.  So DE Shaw will now be charging 3 and 30 rather than 2 and 20.  Anyone who doesn’t like it can have their money back, but they won’t be allowed back in if they change their mind (FT)

Interesting profile of Marianne Lake, suggesting that her move from CFO to run JP Morgan’s consumer operations is grooming for the top job (The Times)

Another high-level Goldman departure – Edward Rossetti, head of US ETF trading, has gone to JP Morgan (Business Insider)

 Neuroscientist Matthew Walker has a lot of really, really bad news about the long term health consequences of the typical banking industry sleep pattern (Wired)

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AUTHORDaniel Davies Insider Comment

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