"It's a win-win-win solution!"
Interview with Frank Appel and John Allan
A unique and powerful banking partnership is developing in Germany: Deutsche Bank is taking a major share in Postbank and the companies have signed a far-reaching cooperation agreement. This transaction marks a major step forward in the German banking consolidation, strengthening Germany as a financial center, while guaranteeing job security and continuity. Deutsche Bank's stake of just below 30 percent gives Postbank a basis for further dynamic growth - and Deutsche Post can keep concentrating on its core business.
DPWN News spoke to Chief Executive Officer Frank Appel and Chief Financial Officer John Allan about the transaction, which significantly changes the German banking landscape.
Mr. Appel, why is Deutsche Post selling 29.75% percent of Postbank's shares to Deutsche Bank?
Appel: In the past 10 years Postbank has developed very successfully with Deutsche Post as majority owner. Today it's the leading German retail bank with 14.5 million loyal customers, a position that we are very proud of. Deutsche Post has benefited from this partnership as well as it allowed us to fully leverage the strength of the Group's branch network.
In order to secure the same kind of growth for both Postbank and Deutsche Post in the future, we took a thorough look at a variety of options during the past months. We are convinced that the agreement with Deutsche Bank is the very best solution for all stakeholders - for Postbank, because they gain a strong new shareholder with an excellent reputation, which stands for continuity and growth; for Deutsche Bank, because of Postbank's key position in the German retail market; and for Deutsche Post, because we can concentrate mid-term on our core competencies in logistics, express and mail.
Most people had expected Postbank to be sold completely - what made you decide for the two-step model?
Appel: We are very excited that we have found a win-win-win solution with such a growth-oriented structure: Postbank gets a strong new shareholder, and the following steps can be completed smoothly. No one will have to chase any integrations targets and there will be no changes to Postbank's winning formula. Employees and customers alike won't feel a difference, except for a wider product range and better service. Deutsche Post now has a clear path to a mid-term exit.
This deal creates additional value for investors, just as we pledged in our Roadmap to Value capital markets program: The proceeds will be a central component for our considerations of returning it to our shareholders and on top we can generate more value out of our logistics and express businesses in the long term.
First Dresdner and Commerzbank - now Deutsche Bank and Postbank: does that herald branch attrition and mass redundancies?
Appel: Absolutely not. What we achieved here is an agreement purely driven by growth - cost cutting is not an issue and shareholders benefit from a strong valuation. Continuity in management and brands goes along with job security for Postbank's employees. On top of that, both partners envisage substantial revenue growth from future cooperation. These benefits will be there without costly rebranding or transition efforts. With our innovative model we will show that it is possible to consolidate in a different way: without job losses or the mass closure of branches. We are convinced that this partnership will create a new heavyweight in the European banking market and strengthen Germany as a financial center.
What are the advantages for Deutsche Post and Postbank from this sale?
Appel: For Postbank, the new structure means first and foremost planning security. With their unique retail platform, they can now focus fully on exploiting the growth opportunities in a market that is currently undergoing a profound transformation. It is especially positive that branches, jobs and the brand will remain untouched. Also, management and corporate governance will continue unchanged.
For Deutsche Post, the agreement means that we will now be able to focus management resources on the main areas of mail, express and logistics. This is important, as we have ambitious plans for the future: the global express and logistics markets offer enormous growth opportunities that we want to exploit in the coming years. The target we have set ourselves is to become the first choice for our clients worldwide - we can now concentrate on this with all our strength.
What will the partnership between Deutsche Bank and Postbank look like in practice?
Appel: Both banks have agreed in principle to cooperate in several areas, including mortgages, home finance and investment products. We expect this cooperation to have substantial revenue potential for both companies.
The management of Deutsche Post is working on a new long-term strategy. Can you shed some light on what you're planning to do next? Sell your mail business?
Appel: We are the leading company in fast-growing markets: logistics and express. We also have a very sound German mail business that has been able to maintain its strong position in a fully liberalized market. As outlined in our "Roadmap to Value" and with today's transaction as a stepping stone, we will now focus our resources on this businesses and generate more value from those businesses.
What effect will the partnership between Deutsche Bank and Postbank have on customers?
Appel: This is a great solution for customers as they will be offered greater services in more retail outlets than any other German bank can offer. Postbank is already the leading retail bank in Germany, with 14.5 million loyal customers and those customers, as well as Deutsche Bank's 9.7 million customers in Germany will have access to highly innovative products and services from both banks in the future.
You have been reducing the number of branches for years. Now you also want to sell Postbank. Does that mean a further reduction of branches?
Appel: First of all, today, with about 14,000 branches, we have more branches than any competitor - and the number is rising. Over and above Deutsche Post and Postbank intend to extend their existing retail outlet cooperation beyond 2012. In all our decisions the focus is on the customer and here Postbank is already stronger than any other German bank and Deutsche Post is also continually expanding its range of services offered to customers.
Deutsche Post remains a shareholder for one year at least and remains in the Postbank supervisory board - so nothing really changes.
Allan: You have to look at the complete structure of the agreement. It paves the way to a well-defined exit path for Deutsche Post from our banking exposure. We now hold the key to focus on becoming a pure play logistics company, an issue many investors have urged us to tackle for years. And we are receiving an attractive price.
What will change in terms of corporate governance now that Deutsche Post will soon hold only a bit more than 20% of Postbank?
Allan: We will continue to support Postbank' value-creating strategy and oversee its implementation in the best interest of our shareholders. Since Deutsche Bank offers new growth potential for Postbank, we are very excited about seeing these opportunities being exploited.
Postbank has ensured Deutsche Post of stable cash flow and returns for years. Wouldn't a valuation of Postbank of more than 10 billion Euros have been more appropriate?
Allan: Well, the numbers tell a different story. There is a substantial premium of about 35 percent above last Thursday's closing share price, so that the dilution of our EPS will be limited. Whether you compare this to other transactions in the banking industry or to Postbank' share price before Nov. 8 - it is very favorable. We reached a truly fair price for our stake. Look at the details: Deutsche Post will receive no less than 2.79 billion euros upfront in cash, and there is a clear path to full monetization. Deutsche Post has both a value protection against an ever worsening environment for financial stocks and an upside - this is secured through the put/call structure.
What will be the impact on Deutsche Post's P&L account and balance sheet?
Allan: There are a few changes that will occur: We assume that Postbank will be accounted at equity in the future, i.e. below the EBIT line in our P+L. The impact on earnings per share is very limited. What's more important is our focus on cash generation and we believe that in the long term, we will focus on generating more cash from our logistics and express businesses, which are capable of being great cash generators just like our MAIL business.
In regard to our balance sheet, the structure should become much more transparent and easier to understand for investors. Mind you, Postbank has a very large balance sheet with a total of more than 200 billion euros compared to the 35 billion euros of our industrial business.
How will your outlook change?
Allan: Our underlying guidance for 2008 remains unchanged, provided that we won't see a significant worsening of the economic environment. The book gain will be treated as non-recurring gain and therefore won't affect our underlying guidance.
As far as the outlook for 2009 is concerned, the absence of Postbank's EBIT will affect the guidance. We now expect underlying EBIT of 3.4 billion euros compared with the previous 4.7 billion euros.