Deutsche’s private bank cuts spending on external consultants by 70%

Deutsche Bank has slashed spending on external consultants by 70 per cent in its private bank as the division works to become more profitable after a badly botched IT project last year.

Under the private bank’s new head, Claudio de Sanctis, who replaced Karl von Rohr a year ago, the division has drastically cut back on external advisers, ending projects that involved Boston Consulting Group (BCG) and other professional services firms, according to people familiar with the details. The people added that the unit had reduced its spending on consultants by a double-digit-million-euro amount.

“Working with external consultants can be seen as an easy way out,” de Sanctis told the Financial Times: “If you have a problem, call a consultant who will fix it for you.”

“We need to bring our expert knowledge . . . to fix our recurring problems ourselves,” he said, adding that the lower consultancy budgets were here to stay.

Deutsche’s private bank has long struggled with high costs and weak profitability. While it generated 33 per cent of the lender’s revenue in 2023, it was responsible for only 19 per cent of pre-tax profits.

Over the past few years, every euro of revenue generated by the private bank has involved about 80 cents in costs. In early 2022, von Rohr promised to reduce this to between 60 and 65 cents by 2025, but by the end of last year, the cost-to-income ratio remained at 81 per cent.

The private bank employs 38,000 of Deutsche’s 90,000 staff and is responsible for its German retail banking operations, including the Postbank brand, as well as wealth management.

The division has a history of relying on external advice, with Bain & Company masterminding a 2017 restructuring of its retail banking business and BCG more recently playing a leading role in an attempt to develop a digital investment platform for retail customers. That project, codenamed Vestivity, was launched under von Rohr but scrapped by de Sanctis this year. BCG declined to comment.

In late 2023, De Sanctis stepped up cost-cutting with a plan to close as many as 250 of Postbank’s 550 remaining branches.

This year, the lender struck a deal on the branch closures with Germany’s powerful service sector union Verdi. “The benefits of structural cost cuts will become visible from 2025,” de Sanctis told the FT. “This should bring our cost-income ratio to levels allowing us to reinvest more incremental savings also back into our wealth management business.”

He noted that the cost-income ratio of his division fell 1.4 percentage points year on year in the first quarter of 2024, partly because of lower spending on consultants and travel.

“In the first quarter, we delivered on the cost side, which is great in particular given the huge inflationary pressures,” he said. Revenue at the private bank fell 2 per cent year on year between January and March while costs fell 4 per cent.

The botched migration of 12mn Postbank customers to Deutsche IT systems last summer was costly and embarrassing. The bank originally claimed the project was successful. However, thousands of customers were locked out of their accounts for weeks and customer service centres were overwhelmed.

The problems resulted in more than €100mn of additional costs for Deutsche. The bank was also publicly rebuked by financial regulator BaFin, which sent in a special monitor.

“We believe under the new private bank management, there is a cultural change and increased focus on improving the returns in the business,” JPMorgan analyst Kian Abouhossein wrote in a note on Deutsche this month. He added that rising profits in retail banking and wealth management would make the bank less exposed to unpredictable investment banking revenues.