The only really safe spaces at Deutsche Bank now

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The only really safe spaces at Deutsche Bank now

Deutsche Bank's front office investment bankers were granted a reprieve in the first quarter of 2019. Instead of cutting headcount in an attempt to keep costs down in the corporate and investment bank (CIB), Deutsche added staff in the front office. There were 301 more front office staff at DB at the end of the quarter than at the start. This appears to have been deliberate rather than accidental:  CFO James von Moltke said today that bank is intentionally maintaining front-office CIB headcount. 

This is in line with CEO Christian Sewing's strategy of April last year. Under Sewing's approach, Deutsche restructured the front office of its investment bank between April and July 2018 (by, for example, pulling back from U.S. rates trading, cutting in U.S. equities, and closing corporate finance teams focused on U.S. or Asian markets). That job is now done. Following the end of merger talks with Commerzbank, Sewing said today that no other strategy is on the table: Deutsche continues to follow his plan of last year, and to push to cut overall costs to €21.8bn or below in 2019, but not by trimming the front office.

This is sort of admirable. After all, long-term plans are all the rage in banking right now and Deutsche's historic problem has been a failure to commit to or execute against its intentions. As the chart below shows, some of Deutsche Bank's investment banking businesses actually gained market share in the first quarter of 2019 compared to the same period a year earlier. It's not all bad, and Deutsche's projections for CIB revenues during the rest of the year are warmly optimistic.

However, it's not all good either. Deutsche's equity capital markets business has dwindled to almost nothing. Deutsche Bank's corporate and investment bank made a loss of €88m in the first quarter. And as the Financial Times points out, the bank has been spending €1.02 to generate €1 in revenue in the CIB.

This isn't exactly sustainable. Nor is the rest of the year guaranteed to deliver the revenues the bank is hoping for: JPMorgan analyst Kian Abouhossein pointed out today that DB's forecasts seem abnormally optimistic compared to the rest of the market. 

So where are the havens if Von Moltke and Sewing's strategy succumbs to gravity? Anything relating to equities is probably best avoided, particularly in the U.S. where Abouhossein thinks the bank needs further big cuts. But jobs in any of the areas below should be fine, for a while...

1. Transaction banking 

If you want a long career at Deutsche Bank now, you really need to be in with Stefan Hoops, the 39-year-old head of Deutsche Bank’s transaction banking business. Transaction banking is Deutsche's flavour of the moment. Revenues there grew 6% in the first quarter. Within transaction banking, you want to be in cash management where revenues grew faster still.

2. Credit trading 

Last year, Deutsche Bank's credit traders were the best in the market (jointly with JPMorgan), according to Coalition, and their supremacy appears to have continued in the first quarter. Although there are some queries over the impact of future capital costs on Deutsche's credit crown, the bank said flow credit revenues were "materially higher" in the first quarter. This is the place to be at DB.

3. M&A advisory 

Having shaken up the leadership of its investment banking business last year, Deutsche Bank seems to be experiencing a new lease of life in M&A. As the chart above shows, Deutsche's M&A bankers had an excellent first quarter, and seized market share from both UBS and Credit Suisse. As a non-capital intensive business with growth potential, DB M&A looks like a safe bet.

4. Debt capital markets 

Lastly, DB bankers might want to make themselves a home in debt capital markets (DCM). The bank's DCM revenues fell in Q1 2019 compared to Q1 2018, but they fell by less than rivals'. Most importantly, Deutsche flagged, "fixed income and debt origination," as an area of hiring and growth, and pointed out that it gained market share across both investment grade and high yield capital markets in Q1.

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