Deutsche's plans include retail banking
Deutsche Bank, the biggest financial institution in Europe, plans to expand its retail operations in Poland through the restructuring of its only Polish bank, Bank Wspolpracy Regionalnej w Krakowie (BWR), BWR told the Business Journal last week.
Friedhelm Herb, BWR's CEO and a member of Deutsche Bank Polska's managing board, said an agreement had been signed Thursday with the 40-branch regional bank, of which Deutsche controls 91.68%.
"The next six to eight months (will be devoted to) the restructuring of the branch network that we have," Herb said, adding that there was an urgent need to update BWR's internal infrastructure and operating inefficiencies. "There's some work to be done," he said.
When Deutsche Bank purchased the financially troubled retail and corporate bank in 1998, which controls less than 1% of Poland's overall banking market, analysts said it was only to curry favor with the Banking Supervisory Committee (KNB).
During that time, Deutsche had jockeyed for control of BIG Bank Gdanski (BIG BG), a takeover bid that ultimately failed. Now it's hoping BWR will be its ticket into an emerging retail accounts market.
Deutsche last week included Poland in a list of seven European countries in which it plans to expand its Deutsche Bank 24 retail operations and online banking services. Though legal considerations make it unclear at this point whether BWR branches will assume the Deutsche Bank 24 brand designation, BWR will be fully integrated by the Deutsche Bank subsidiary, Herb said.
"BWR is the nucleus for Deutsche Bank 24 in Poland," he said. "There will be no massive branch opening."
The other six countries being targeted by Deutsche Bank 24 Germany, Italy, Spain, France, Portugal and Belgium are all in Western Europe.
"I found it quite interesting that Poland was included," said Jean Pierre Lambert, an analyst at HSBC Securities in London. But Deutsche's decision to leverage its existing operations in Poland was the right move, he said, comparing it to Swedish SEB's intention made public Thursday to purchase 19.79% of Bank Ochrony Srodowiska (BOS) from Kredyt Bank.
The world leader in internet banking plans to utilize BOS as a foothold in Poland. "I think Deutsche Bank will try something similar," Lambert said.
But, warns Bogumila Cebelinska, an equities broker with Wood & Co., "every bank in Poland is (getting into the internet). We are still used to going into the branches rather than using computers and phones."
Poland may not yet be prepared to entertain Deutsche's stated "clicks and a few bricks" pan-European expansion vision, Cebelinska said. Although Deutsche finds itself behind the power curve as far as retail competition goes, Poland's market is still open to new players, she said. "We are still an under-banked country, Cebelinska said. "There is still a big market for new ideas and products."
Deutsche would be wise to concentrate on banking specialties where Poland lacks experience such as in mortgage banking, leasing or franchise banking, she said. Cebelinska added that "this is a great opportunity to steal clients" from PKO BP, the state-owned bank that claims 42% of the retail market, but lacks sophisticated products or an online service.
Herb said Deutsche's second focus in Poland along with BWR's restructuring is to expand its mortgage banking services already being offered through Deutsche Bank Polska. But analysts said that with interest rates as high as they are in Poland, it's difficult for a bank to offer an attractive mortgage.
Artur Szeski, an analyst with CDM Pekao Securities, said it's a banking specialty Poland has been waiting for. "Everybody wants to do mortgage banking in Poland, but nobody really knows how to do it," he said.
Deutsche, for its part, gained crucial experience with mortgages during the frenzied build out of the former East Germany after German reunification in 1990. Analysts said they believe Deutsche Bank could establish a retail presence in Poland, but it would take time.
"The funny thing about Germans is that they always come late," Szeski said. And that's why Deutsche will only be present through BWR in the short term, he added. HSBC's Lambert concurred: "That's the price foreign banks sometimes have to pay to obtain entry in Central and Eastern Europe."
Deutsche has so far invested zl. 280 million ($65 million) into BWR, Herb said, of which zl. 270 million ($63 million) went into a capital increase and zl. 10 million ($2.3 million) for shares Deutsche purchased from shareholders. The German bank took over BWR's management on June 5. Realization for restructuring activities is scheduled for the second or third quarter of 2001.
As for its Europe-wide expansion, Deutsche Bank 24 will add 3.3 million private Deutsche Bank clients to Deutsche Bank 24's 7.2 million existing German customers. It plans to open branches in major European cities while offering banking services online and via call centers.
Profit figures released last week by Deutsche showed net income of e3.78 billion for the first half of 2000, more than double its result of e1.76 billion during the same period last year.
However, the bottom line doesn't explain everything. More than e2 billion of that profit was from Deutsche's sell-off of part of its Allianz holding, analysts said. Deutsche's trademark activity in securities, commodities and currency trading saw a 44% decrease in income to e1.39 billion.
