Via Financial Times

An era of unbridled global expansion is over for the banking industry, according to the new head of Deutsche Bank’s US operations, making her first public remarks since taking over the reins of the division.

Christiana Riley, who was promoted this summer when the German bank announced sweeping changes aimed at restoring profitability, said that banks were being forced to retrench after the world passed “peak globalisation”.

“You have to pick your battles,” Ms Riley told the audience at the FT US Banking Forum in New York on Thursday. “You can’t just cream off the top.”

With 18,000 jobs set for elimination, many of them in New York, Ms Riley is helping implement some of the most significant parts of the restructuring at the bank. The changes are seen by many in the industry as a declaration of surrender by Deutsche in a two-decade effort to break into the top ranks of Wall Street banks.

Of the €74bn of assets that were hived off into a “bad bank”, the bulk came from the investment bank, where Deutsche’s equities division is set to shut down and the rates trading operations will be shrunk significantly.

“We’re operating post peak globalisation,” Ms Riley said. “The financial services sector has been perhaps biggest beneficiary of globalisation. Now it’s an era of unbridled global expansion narrowing. What happens to these institutions? Perhaps more regional in nature.”

Ms Riley, 41, was formerly the finance chief of the German lender’s investment banking division, becoming the chief executive of Deutsche Bank USA and a member of the bank’s management board in July.

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With globalisation narrowing, Deutsche would continue to argue for similar rules across jurisdictions, Ms Riley indicated and the different regulatory treatment of banks in Europe and the US was a concern, she said.

“The level playing field will continue to be an issue over this decade,” she said, noting that in the US regulators were inclined to push for the next round of international Basel rules to be capital neutral, as they thought there was adequate capital in the system already. “We need to take that message back across the Atlantic,” she said.

Asked about the impact of low rates on Deutsche’s future operations, Ms Riley said that the negative interest rates in Europe “defied all logic” and had not had the effects intended by central bankers. “In many ways it is a cautionary tale about the concentration of power in Europe,” she said. “Central banks are locking in long-term negative rates and forcing banks down the risk curve.”

This, she said, was “internally inconsistent” with capital rules that penalise banks for adding risk.

Looking to Deutsche Bank’s future in the US, she said it would pursue operational improvements through technological innovation. The potential for artificial intelligence in underwriting and making the banks more operationally efficient is still largely untapped, she said, and “retail banking in this market is ripe for disruption”.

Technological changes sweeping banking were “in the second inning of a nine-inning game,” she said.