The Value of Industrial Shareholdings in a Universal Bank: The Case of Deutsche Bank in the 1990s

Abstract

This clinical paper analyzes which fraction of Deutsche Bank’s market value of equity during the decade of 1990 to 1999 can be attributed to its portfolio of industrial shareholdings. The residuum then serves as a proxy for the valuation of its universal banking business. A new method for this kind of segmentation is presented and applied. Although Deutsche Bank traded during Brazil’s currency and debt crisis in January 1999 close to the asset value of its portfolio of industrial shareholdings, I show that the hypothesis that Deutsche Bank was first and foremost a closed-end fund and that the banking business was only of secondary importance is not true for the 1990s. Due to the fact that, for the first time, this study uses internal data on the book value of Deutsche Bank’s industrial shareholdings, the tax effect which is a possible explanation for the closed-end fund puzzle can be quantified. On an after tax base, Deutsche Bank derives on average a maximum of one third of its market value of equity from its large and manifold portfolio of industrial shareholding and hence at least two thirds can be attributed to its universal banking business.