Deutsche Bank has had a change of heart. It no longer wants to be a global investment bank with a leading position in all fixed income currencies and commodities (FICC) businesses and an eye to expansion. The cost of this 'optionality' is just too high. So is the resulting leverage ratio. Deutsche is therefore cutting back.
In a strategy presentation this morning, the German bank outlined its plans for reshaping the bank between now and 2020. In contrast to previous presentations which have been exuberant and spoken of Deutsche as the 'leading client-centric global universal bank', the latest presentation was all about 'shrinking', 'repositioning', 'optimizing' and 'reducing'. If you work for Deutsche's corporate and investment bank, it looks like bad news. With its new, 'focused global client-centric model', Deutsche now aspires to become a bit like Barclays and Barclays has been busy cutting people from its fixed income sales and trading business.
Across the bank as a whole, Deutsche wants to cut €3.5bn in costs, a move which our German editor says could result in the elimination of 12,000 jobs. In the corporate and investment bank, Deutsche says it will be 'reducing' its repo business and its involvement in long-dated uncleared derivatives. It will also be 'optimizing' rates, prime finance and flow credit. And it will be pulling back from as yet unspecified marginal markets and going for a 'rep office' model.
It's not all bad news though: Deutsche will also be doing some hiring. As per the chart below (helpfully produced by Anshu Jain) Deutsche wants to 'grow' in four areas: corporate finance; cash equities; equity derivatives, and emerging markets debt. Add to this the bank's ongoing intention of expanding in the U.S. and its need to continue bolstering its compliance and control business, and it looks like there are six sorts of people Deutsche wants to hear from now: 1. M&A and capital markets professionals, 2. equities professionals, 3. equity derivatives professionals, 4. EM debt professionals, 5. US rainmakers and 6. compliance specialists.
For the moment, Deutsche is indeed hiring. In the first quarter, total headcount in the bank's corporate banking and securities business rose by 1,035 people. However, headcount in the front office fell by 177 people, suggesting most of these recent hires were to ramp up Deutsche's lax controls. Pay per head in the corporate and investment bank fell by 4% in the first quarter (possibly because of the shift away from front office staff) and the cost/revenue ratio rose to a precipitous 85%.
How did Deutsche do in its new favourite business areas over the past three months? That depends where you look. Compared to rivals, the first quarter 36% year-on-year increase in advisory revenues looks good but not great. At Bank of America and Citigroup, M&A revenues rose by 51% and 70% respectively. The 31% increase in Deutsche's equities revenues looks more impressive, and puts the German bank on a par with Morgan Stanley and Goldman Sachs.
As Deutsche seeks to bolster its equities and M&A businesses, it could find itself competing for talent with other European banks that have similar intentions. Barclays' strategy is strangely similar. So it UBS's. So yet, could be Credit Suisse's when Tidjane Thiam arrives next month. That's bad news for Deutsche, but good news for equities and advisory professionals who are suddenly everyone's favourite staff.
Where Deutsche Bank is growing its investment bank. And where it isn't
Source: Anshu Jain, Deutsche