Crisis response of the year: Deutsche Bank

Asia Risk Awards 2020

Michael Connolly, Deutsche Bank

Unlike the global financial crisis of 2008, the Covid-19 pandemic that rocked the world at the start of this year wasn’t caused by shoddy practices in the banking sector. But nonetheless banks have still been thrust to the centre of the stage, with policy-makers expecting them to continue to provide the essential services for economic continuity. Facing unprecedented challenges in the business environment, both staff and clients have appreciated the steady hands that the leadership at Deutsche Bank has been able to provide.

Asia-Pacific chief operation officer Michael Connolly recalls that, even in the early days of the crisis, it was clear that bolstering technology infrastructure was going to be key to weathering the crisis – and speed was of the essence, in order to provide continuity of service to clients.

“At the very beginning, it was like a race and we had to help clients navigate the new and unforeseen risks they were facing,” says Connolly.

From procuring new hardware directly from manufacturers to repurposing existing equipment to adapt to work-from-home policies, operational flexibility, adaptability and agile thinking have been critical, says Connolly.

While most banks have a dedicated second site for contingency planning, such preparations were of little use during a pandemic.

“We’ve never seen anything like this,” says Connolly. “People always assumed that in a major crisis we would move to our business continuity plan buildings. Now the preconception of what you can or can’t do remotely has been turned on its head.”

Weathering the storm

During the Covid-19 crisis, Deutsche Bank was one of the few banks that was able to continue providing 24-hour liquidity on Asian products. Leveraging its unique ‘hub-and-spoke’ business model – in which the bank operates onshore in local markets but also offshore in regional centres like Hong Kong and Singapore – it helped clients to sell more than $1 billion worth of total return swaps and credit-linked notes, as well as $500 million in synthetic swaps, across a range of different Asian currencies. This allowed their clients to successfully rebalance portfolios at a critical time of global market stress.

Technology was key to maintaining a competitive advantage during this time, with a suite of solutions and bespoke execution capabilities allowing clients to maintain hedging and investment programmes even as their own operations were interrupted.

Deutsche Bank’s internal pricing engine, Rapid, allowed the bank to continue to offer superior round-the-clock RMB liquidity and competitive pricing, despite overall market liquidity having fallen to just 20–40%, says Connolly.

Moving money into and out of China is always challenging, but Deutsche Bank’s extensive experience in the country – it has been there 148 years – helped it rise to the occasion during Covid-19, serving the needs of multinational corporations with extensive capital investments in the country.

People always assumed that in a major crisis we would move to our business continuity plan buildings. Now the preconception of what you can or can’t do remotely has been turned on its head

Michael Connolly, Deutsche Bank

In one instance, a leading global medical technology company had received more than a dozen orders from hospitals in China, including Wuhan, for critical diagnostic equipment.

However, an acute problem arose when requirement of payment confirmation prior to shipping was disrupted by closures. Since these orders came in over the Lunar New Year holiday, the automated linkage between the national clearing system and Deutsche Bank China was suspended.

Given the urgency of the situation, the local Deutsche Bank operations team in China came up with an alternative solution. Even while the office was officially closed, the team managed to manually track the arrival of payments via the national clearing system, providing email confirmations as soon as they came through, allowing orders to be processed as quickly as possible.

In Australia, Deutsche Bank provided a AU$2 billion ($1.4 billion) deal contingent foreign exchange hedge for an offshore client that wanted to acquire an Australian company, doing so on a risk-transfer basis at a time when forex fluctuations were extremely volatile. Another success in Australia was being able to pay positive mark-to-market on a $400 million forex hedge for an Australian corporate at the peak of the liquidity crisis. In India the bank helped support a capital injection for a cabling solutions manufacturer’s new legal entity in India with complex forex conversion implications, despite the fact that both countries were on lockdown.

The human side of crisis management

But this year’s win isn’t just premised on the significant structures that the bank has been able to put together under complex conditions. Deutsche Bank’s crisis management also has a human side to it.

“As management, it’s easy to forget that people in the trenches may not have the same access to information that we do,” says Connolly. “The consistent flow of information that we had was appreciated by employees.”

Regular email updates and enhanced internal communications have helped keep teams together, benefiting both the well-being of employees and the business itself.

Other measures implemented have included remote mindfulness and yoga classes for those still working offsite.

One difficult and somewhat intangible impact of the crisis – which Connolly says cannot yet be properly assessed – is the lack of interpersonal interactions between colleagues, which is important in terms of idea generation and fostering business success.

“How do you get the best out of people when they aren’t collaborating in person? There’s no silver bullet yet, but we’re spending a lot of time working on it,” says Connolly.

The potential upside to such a paradigm-shifting crisis, as demonstrated by Deutsche Bank, is that financial institutions have been forced to re-evaluate and redefine what business continuity means. Connolly says that the crisis may ultimately end up changing some legacy processes for the better. For example trade finance – a crucial component of the Asian economy – still relies to a large extent on physical bills of lading. While there have been some attempts to bring distributed ledger technology to the sector, progress has been slow; the changes being brought about by Covid-19 could potentially accelerate changes in this area, too.

Covid-19 has forced banks to consider alternatives to face-to-face client interaction, leading to innovative approaches that will continue to be used in the future as the industry settles into a “new normal” for conducting business, says Connolly.