Deutsche Bank in Silicon Valley recovers from Libor Scandal losses

Rick Steves

In November 2014 it was reported that Deutsche Bank AG was planning to launch joint innovation laboratories with technology firms IBM, Microsoft and HCL Technologies to improve its digital banking operations and fight-off new market entrants, with a budget of €200 million in the digitalization of its client related operations. Back then, the project was […]

Deutsche Bank in Silicon Valley

In November 2014 it was reported that Deutsche Bank AG was planning to launch joint innovation laboratories with technology firms IBM, Microsoft and HCL Technologies to improve its digital banking operations and fight-off new market entrants, with a budget of €200 million in the digitalization of its client related operations. Back then, the project was already to set them up in three venues in Berlin, London and Palo Alto.

Having opened in Berlin and London already last year, the company has now announced that the innovation lab in Palo Alto, home to more than 7,000 businesses employing over 98,000, is officially open.  Deutsche Bank Labs, part of the bank’s Strategy 2020, has a budget of €1 billion for the next five years. The Bank has already been active with an innovation lab in Silicon Valley since 2014, but working from a local start-up accelerator center, and met with over 500 startups.

Kim Hammonds, Deutsche Bank’s Group COO, said: “The Silicon Valley lab will help Deutsche Bank offer clients new and improved products and services, strengthen efficiency and deepen its relationships with the Valley’s innovation and investor communities”, as he heard pitches from 15 start-ups, ranging from distributed ledger technology (DLT) related initiatives to data analysis software.

Deutsche Bank AG (FRA:DBK) has been under pressure in recent months, despite its share price being falling since 2014 as the group had recurrent quarterly losses against expectations: €1.2 billion in pre-tax losses in Q4 2013 against €600 million profit expected;  a Q3 2015 loss of €5.8 billion, against its forecast of €1 billion profit.

The second largest interbank FX dealer in the world, with a 14.54% market share, pre-announced a net loss of €6.7 billion for the year of 2015. A Citi Group analyst stated: “We believe a capital increase now looks inevitable and see an equity shortfall of up to €7 billion, on the basis that Deutsche may be forced to book another €3 billion to €4 billion of litigation charges in 2016.” In February 2016, the stock reached its low, at €13.05. After a bounce since then, the market remains pressured at €14.09.

Behind the 2015 losses are charges to cover restructuring and litigation costs as the group agreed to pay a combined $2.5 billion in fines to American and British regulators over the Libor scandal uncovered in June 2012, pledging guilty to wire fraud. In November 2015, the New York State Department of Financial Services and the US Fed fined Deutsche Bank Group with $258 million for being caught doing business with countries under US sanctions at the time. By the end of the year, the group increased litigation reserves to €5.5 billion at the end of 2015, with a further €2.2 billion held against other contingent liabilities.

 

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