It wasn't supposed to happen this way.
Smug e-financiers have long held that U.S. banks were as much as two years ahead of their European counterparts on business-to-consumer Internet initiatives, and that when it came to b-to-b, the Europeans were positively Jurassic. A flurry of Web moves by Deutsche Bank AG proves otherwise.
Frankfurt-based Deutsche Bank, the world's second-largest bank in terms of total assets, is undertaking a stunning array of b-to-b Internet projects including:
â¢ A corporate Internet banking portal, db Business Direct, slated to launch in mid-June.
â¢ An agreement with a Washington-based start-up to sell mortgage-backed securities over the Web to institutional customers in the U.S.
â¢ A new technology venture capital unit with a $1 billion war chest.
E-banking insiders said Deutsche Bank's financial strength gives its Internet initiatives immediate global impact. "Deutsche has so much clout," said Rajeev Agarwal, senior analyst-wholesale banking practice at e-finance consultancy TowerGroup.
db Business direct, for which Deutsche is budgeting $30 million ithe first year alone, will allow corporate customers to do most of their banking online, said Jorgen Werner, COO of Deutsche's eBusiness division. "The target," he said, "is to be the CEO's and CFO's Internet banking workplace."
The services provided by the portal will include cash management, money market deposits and foreign exchange. The site will also offer business news, stock quotes, language translation and business travel services.
It is aimed at both European-based companies and U.S. companies operating in Europe. Deutsche Bank is targeting companies with annual revenues of between $3 million and $500 million, Werner said. The bank's goal is to convert 50% of its corporate customers to db Business Direct by 2004.
Deutsche Bank will market db Business Direct largely through its customer relationship managers, who are being trained on the portal's use.
In the short run, Deutsche Bank has a jump on U.S. banks with operations in Europe, where the Internet economy is just taking off.
Jamie Hyde, Merrill Lynch & Co.'s London-based European banking analyst, said Deutsche Bank's reach among midsize companies provides a ready-made Internet banking base. "Deutsche Bank has got the most extensive and diffused market reach in the midcorporate market," he said.
Most of Deutsche Bank's Internet initiative in the U.S. is being carried out by Deutsche Banc Alex. Brown. Central to the New York-based investment banking division's e-banking push is a recent agreement with Pedestal Inc., a Washington-based start-up secondary mortgage trading site. (Secondary mortgage trading involves the buying and selling of mortgage-backed securities, primarily those issued by Freddie Mac and Fannie Mae.)
Deutsche Bank Alex. Brown, one of the top U.S. investment banks, has linked its electronic mortgage-backed securities platform with Pedestal Inc.'s trading site. Its bond sales people are pointing their institutional customers to Pedestal's site to do their buying of mortgage-backed securities.
The scheme may appear humdrum, but it is a daring gambit by Deutsche Bank Alex. Brown and puts it in the vanguard of major investment banks.
The dollar amounts at stake are staggering. Since March, when the Internet program was started, Deutsche Bank Alex. Brown has directed some $20 billion through the site, said Joel Horne, managing director of the mortgage-backed securities group.
The investment bank's execs want to move up to $100 billion through Pedestal by year's end, he said. Deutsche Bank Alex. Brown has already signed up 60% of its institutional clients to use Pedestal.
Horne said Deutsche Bank Alex. Brown entered the deal to free its sales people from having to process tedious trades and to reach a wider customer base through the Internet.
Investment bankers fear being cut out by the Web, especially with simple Freddie Mac and Fannie Mae transactions. The dread--some financiers say it is a foregone conclusion--is that Freddie Mac and Fannie Mae will one day bypass bankers entirely and sell their securities directly over the Internet to institutional investors.
Deutsche Bank Alex. Brown is shrewdly adapting itself to the changing environment. Its sales people, instead of just cranking out trades, are concentrating on giving institutional customers advice.
Deutsche Bank Alex. Brown plans other Web alliances, but Horne declined to give details.
Venture capital push
Deutsche Bank is also serious about Internet venture capital, and one recent move put it in place to challenge top U.S. venture capitalists now scouting for investments in Europe.
Deutsche Bank in April set up DB Venture Partners, a new arm of DB Capital Partners, the bank's venture capital unit. DB Venture Partners, with $1 billion to invest, will target telecommunications, Internet and other technology companies, said Michael Patton, managing director and founder.
Most of London-based DB Venture Partners' investments will be b-to-b-oriented and will range from $10 million to $40 million, Patton said. The firm is nearing its first round of investments, which will be in Europe-based companies. "We've only been here four-and-one-half weeks," Patton said. "But we're well on our way to investing money."
DB Venture Partners is up against major U.S. venture capital players that are making Europe central to their b-to-b strategies, including Kohlberg Kravis Roberts & Co. and Hicks, Muse, Tate & Furst Inc. Patton said the Deutsche Bank brand--and his 10 years' experience in telecom investing--will aid DB Venture Partners in competing with the U.S. firms.