The crowdfunding industry in Germany is doing what many European banks are afraid to do — creating value by combining technology and banking. The authors explore the rise of Germany’s crowdfunding industry and how it has affected the way people obtain financial services.
Value creation and profitability at European Banks has languished behind their American counter parties ever since the industry was shaken up following the Global Financial Crises. Contrary to the advice from Winston Churchill, “Never let a good crisis go to waste”, senior management of large continental money banks have done exactly that. They appear to have missed the opportunity to adapt and reinvigorate their business models according to technological changes after the crisis. In an upcoming study by Professor David Young and Dr Boris Liedtke, both from INSEAD, the two argue that the new direction, which European Banks took between 2006 and 2016 was not focused on value creation but instead was driven towards risk reduction and enhanced social accountability while largely maintaining their business model and systems. In fact many have struggled for decades to update the very core IT system that drives their behemothian operations. The share price, price-to-book valuations and the lack of improvement in earnings reflect this missed opportunity. The German market is a case in point.
Deutsche Bank, once the largest private financial institution in the world by assets and among the top ten by valuation, is down to a market capitalisation of less than USD19bn with an alarming price to book ratio of below 25 cents in the dollar. In terms of market value, the largest bank of the largest European economy now ranks far behind American financial institutions – JP Morgan Chase (USD365bn) – and Chinese – ICBC (USD308bn) but is also worth a fraction of once much smaller local players such as Royal Bank of Canada (USD110bn), Commonwealth Bank of Australia (USD92bn) or OCBC in Singapore (USD36bn). The balance sheet of the prime German lender remains full of near-impossible to value tier 3 illiquid assets and billions of partly failed IT project “investments” which are slowly amortising over years. These are leading to its abysmal price-to-book value. The financial outlook of the number two German lender, Commerzbank, which itself is a creation of a merger with Dresdner Bank, does not show a much brighter future. So the two do what prey usually do in such situations: they huddle together fearful about what the future might bring.
About the Authors
Peter Walburg is the CEO and Founder of GreenVesting. He has more than 30 years of investment banking and asset management experience. The economist has worked as an analyst and portfolio manager for leading international financial institutions in Frankfurt and Toronto, and most recently, at DWS, the asset management subsidiary of Deutsche Bank.Peter Walburg lives in the Rhine-Main area and is a member of the German Association for Financial Analysis and Asset Management e.V. (DVFA). As a portfolio manager, he was a member of the Euro Debt Market Association (AMTE) and the International Commission of Standardisation of Corporate Bonds.
Dr Boris N. Liedtke is the Distinguished Executive Fellow at INSEAD Emerging Markets Institute and has over twenty years experience in the financial sector. He was the CEO of the largest bank by assets in Luxembourg and board member for Operations at the largest German fund manager. He is author of numerous articles on finance and trade as well as having received his PhD from the London School of Economics for the publication of Embracing a Dictatorship by MacMillan.