Over the first weekend in July, the most ambitious and fraught integration project in Deutsche Bank’s history was confronted with the unlikeliest of obstacles.
Inside one of the lender’s buildings in Frankfurt, a 200-strong team of retail bankers and IT specialists were racing to complete the final 2,833 tasks needed to transfer the remaining data of German lender Postbank’s 12mn customers over to Deutsche’s computer systems.
The tech sprint was the culmination of its latest effort to integrate Postbank, a retail lender it first acquired a stake in during the global financial crisis before assuming full control in 2010.
A successful weekend would raise hopes of drawing a line under 13 years of dithering and botched attempts to make a success of the Postbank deal; failure risked Postbank’s operations grinding to a halt.
As the meticulous plan, rehearsed several times in previous months, unfolded, an unsuspecting member of the team opened a dishwasher in mid-cycle, with the escaping steam setting off a smoke detector and forcing the evacuation of the building. Precious minutes were squandered before firefighters gave the all-clear.
“My first thought was: ‘This just can’t be true,’” said Karl von Rohr, Deutsche’s executive board member who was in charge of the integration.
Given the stakes, von Rohr’s alarm was understandable. Since 2010, Deutsche has been operating two IT platforms: one for its own retail business and another for its Postbank brand.
“It was like having two banks in one. The systems generated twice the costs,” Lars Stoy, Deutsche’s head of retail banking in Germany, told the Financial Times, which was given access to the final IT sprint earlier this month.
The team recovered the lost time and completed the data migration, meaning Deutsche’s 19mn retail customers were all on the same tech platform for the first time when its branches opened the following Monday.
The transfer of customer data opens up the prospect that Postbank could yet be transformed into an asset for Deutsche’s chief executive Christian Sewing, who has pitched the retail operations to investors as a way to cut the bank’s reliance on its often erratic and capital-intensive bond trading business.
But that will require shareholders to regain confidence in an acquisition that has become a case study in how costly IT blunders and flawed integration efforts can be.
Sewing ran Deutsche’s retail operations between 2015 and 2018, but long before he took the reins, Deutsche’s initial rationale for buying Postbank, which was founded in 1909, had begun to crumble.
While Berlin encouraged its interest in Postbank, Deutsche sold the deal to shareholders with a seemingly compelling logic: Postbank’s large retail deposits would provide cheap funding for an institution that harboured global ambitions for its investment bank.
Yet for almost a decade after Deutsche first began building its stake in Postbank, Germany’s financial regulator insisted on the ringfencing of the latter’s deposits.
Between 2010 and 2015, Deutsche squandered €1bn on its first major IT integration effort, dubbed “Magellan”. The bruising failure helped persuade Deutsche to put Postbank up for sale in 2015, before a fruitless search for a buyer led to a decision to fully absorb the business.
Dubbed “Unity”, the renewed integration effort in 2017 aimed to get rid of Postbank’s own IT systems while delivering €900mn in annual cost savings and additional revenues by 2022. Neither target survived.
“The integration of processes and [corporate] structures took way too long. We should have started working on this much earlier,” conceded a senior manager.
Until 2018, its efforts were also hobbled by a complex structure in which Deutsche’s German retail bank, Postbank and the wider group were three notionally independent legal entities with their own boards that each needed to approve decisions.
Deutsche is now targeting €300mn of cost savings by 2025 in the latest iteration of Project Unity. The stakes are high for Sewing, who has promised to increase revenues at the bank’s retail business between 4 per cent and 5 per cent a year.
That would be a radical departure from its recent performance, with the division delivering negative returns on tangible shareholder equity in four of the past six years.
A lacklustre retail business has failed to galvanise Deutsche’s share price, which has fallen 20 per cent under Sewing and the bank now trades at just 0.36 times its book value.
It is not just shareholders who need persuading that the ill-fated acquisition can be rehabilitated. Despite the euphoria among executives that the final migration of data went as planned, the confidence of Postbank’s 12mn customers needs rebuilding following a series of mishaps.
In January, after an earlier migration of data, Postbank’s online operations were beset by outages for several days. Many customers struggled with a new mobile app, call centres were overwhelmed and social media was flooded with scathing comments. “IT chaos at Postbank,” thundered Bild, Germany’s largest tabloid.
As a result, Deutsche increased its customer support and flagged more clearly another weekend of data migration in April and the final one earlier this month, helping to avert another wave of criticism.
Pointing to the complexity of the task, Stefan Peschke, co-head of Project Unity, is adamant that the migrations that culminated this month unfolded without major hitches. In total, more than 100bn data sets relating to 12mn customers were extracted from Postbank’s IT, transformed into a format that Deutsche’s systems could digest and then moved.
“We needed to ensure that we did not lose a single piece of data — that was the most important point,” said Peschke.
The groundwork was laid just as the coronavirus pandemic struck Europe in the spring of 2020, when for the next 18 months more than 1,000 staff analysed the Postbank data, worked out how to move it and unearthed complications.
One stemmed from the fact that some Postbank clients were erroneously still listed as residents of defunct states such as Czechoslovakia or Yugoslavia, designations that Deutsche’s systems rejected. “In such a project, you not only have to deal with decades of data and history but also with junk data,” said Karsten Roesch, who ran the Unity project alongside Peschke.
Roesch, who also led Project Magellan, said lessons were learnt from that failure which has tried to design a new IT architecture for both Deutsche and Postbank. “For the first 18 months during Magellan we just wrote one concepts paper after the next and built test systems for current accounts. None of that got implemented,” Roesch said.
This time Deutsche was both more brutal and less ambitious, deciding to transfer all Postbank data to its existing IT system but expunging everything tied to Postbank — with the exception of the brand and the branches.
“That was a difficult decision which initially did lead to internal scepticism and opposition,” said von Rohr, adding that it was essential to meet cost-cutting targets.
Despite this month’s success, the process of drawing a line under Postbank’s IT is not finished. While they are no longer in daily use, some systems will remain live until next year as historic transaction data needs archiving.
“As an example, for current accounts, we are obliged to keep the transaction history more than 10 years,” explained Peschke.
As Deutsche prepares to release its second-quarter results this week, Sewing can expect questions about whether the retail bank can turn its performance around.
Claudio de Sanctis, who will succeed von Rohr as the executive board member responsible for retail banking in October, said further IT improvements can be made “even after the successful completion of the Unity project”.
But, for now, there is relief at some rare good news on its troubled relationship with Postbank.
“This was a massive drain on the whole organisation, and not always great for our clients,” said German retail banking head Stoy. While insisting that the integration would prove “crucial for our transformation”, he also admitted that “I won’t become a big fan of IT migrations”.