Germany’s Deutsche Bank to wind down Russia business

Germany’s largest lender, Deutsche Bank, is in the process of winding down its operations in Russia amid the conflict with Ukraine.

The bank joins other companies that are pulling out of Russia as the country intensifies its attacks in a number of cities in Ukraine.

“Like some international peers and in line with our legal and regulatory obligations, we are in the process of winding down our remaining business in Russia while we help our non-Russian multinational clients in reducing their operations,” Deutsche Bank said in a statement posted on its website.

While condemning the attack on Ukraine, the bank said “there won’t be any new business in Russia”.

A number of global businesses operating in different sectors including food, automotive, banking and oil and gas have announced plans to move out of Russia as conflict continues with Ukraine. These include McDonald’s and Coca-Cola, as well as US banks JP Morgan and Goldman Sachs, among others. Japanese car makers Toyota and Honda also said they are pulling out of Russia.

Earlier this month, US oil giant ExxonMobil said it will cease operations in Russia and refrain from making new investments in the country. British energy company BP, Norway’s oil company Equinor and Shell also said they will end their operations in the country.

Russia’s economy has taken a massive hit after the US and its allies took punitive actions against Moscow after its military offensive in Ukraine. Russian companies and oligarchs in President Vladimir Putin's inner circle have been put under sanctions and their assets were frozen by western countries.

The US and UK have banned the import of Russian crude while Europe, which imports more than 40 per cent of its natural gas and 30 per cent of its oil from Russia, has pledged to reduce its reliance on Moscow for its energy needs.

The International Energy Agency has tabled a 10-point initiative for the EU to reduce its reliance on Russian natural gas.

US asset manager BlackRock has also been hit by a $17 billion loss on its Russian securities holdings due to the military offensive in Ukraine, The Financial Times reported.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Germany’s Deutsche Bank to wind down Russia business

The lender joins other companies pulling out of Russia amid the conflict with Ukraine

While you're here