Is Deutsche Bank’s move to cut tech spending a good idea?
BUSINESSES may have a difference of opinion when it comes to business strategy and gaining a competitive edge.
The one thing that most companies tend to agree on, however, is how they only stand to benefit from implementing technology in their operations.
It’s why analysts were surprised when one of the world’s largest investment banks announced that it is going against the trend in its bid to save itself from recent competitive issues and profitability struggles.
Germany’s Deutsche Bank AG’s CEO Christian Sewing is planning to cut back the bank’s spending on technology while at the same time gaining ground on their competition, as part of the troubled bank’s turnaround plan.
The bank is expected to reduce its annual budget on tech to US$3.3 billion in 2022 from a peak of US$4.7 billion this year.
The move may come as a surprise to many industry observers, especially given the fact that the digital revolution is accelerating within the financial services industry.
According to Frankfurt’s Independent Research Managing Director Pierre Drach, Deutsche Bank would probably prefer to spend more on technology, but need to funnel the resources to other areas during the restructuring exercise.
“It’s pretty much impossible for European banks to catch up with the Americans at this stage,” lamented Drach.
Upon his appointment to the bank’s top spot last year, Sewing claimed to have made considerable progress in upgrading the bank’s networks that were deemed antiquated and inadequate by his predecessor, John Cryan.
After an extended period of expansions, the bank ended up with disparate systems that could not communicate with each other, and track its business.
Achieving more with less
While the US$4.7 billion allocated to modernize the bank’s systems may seem like a significant amount, it small in comparison to the US$11.5 billion budget their US-based counterpart JPMorgan Chase has set, whose CEO Jamie Dimon reportedly said, “You have to spend to win” when it comes to new technologies.
The difference in spending is expected to become more prominent as Deutsche Bank slashes its technology costs by nearly a quarter.
Other European banks, however, expect to increase their spending at 4.8 percent annually in the next three years — according to an industry insider.
Deutsche Bank spokesman Senthuran Shanmugasivam, in response to media queries, reiterated the bank’s commitments to investing in IT to enable them to serve their clients better, become safer, more efficient, and better controlled.
“Despite our smaller footprint, our investment plans in 2019 are broadly unchanged as we reallocate resources to our core businesses,” Shanmugasivam told Bloomberg.
According to Frank Kuhnke, who is in charge of the bank’s technology, Deutsche Bank is capable of modernizing its systems without spending a lot and cited migrating to the cloud as an example of its digitization efforts.
Kuhnke further added that the bank had already reduced the cost of data processing by up to 30 percent since 2016 while increasing its computing capacity by more than 13 percent.
Only time would tell whether or not Deutsche Bank is making the right call, but the bank seems to be ready to weather the technology tide that the financial services industry seems to have sailed into.