BEST GLOBAL INVESTMENT BANK Deutsche’s momentum drives it to the TOP Deutsche Bank has grown from being a top-three global markets trader into a top-three global corporate finance house as well: a powerful combination whose architect, Anshu Jain, now hands over to two successors to guide through its most testing period. Deutsche is the master of markets so broken and illiquid that high share is almost a curse, not a blessing. But if better times lie ahead, it will reap rich rewards By: Peter Lee ome September, Anshu Jain, top three in the world as a sales and trading were good years for the industry with rallying co-chairman of the group ex- intermediary across the currency, bond, markets and regulatory changes yet to take ecutive committee and man- credit, equity and commodity markets. More effect. But that was a false dawn.” agement board of Deutsche recently it has established itself also as a top- The good news for Deutsche Bank is that it Bank, will be presenting on three firm in the corporate finance disciplines took key decisions in the first quarter of 2009 Cthe bank’s strategy 100 days into his tenure of investment banking: debt and equity to radically reshape its investment banking alongside Jürgen Fitschen, as co-head of the capital raising and M&A. business. eurozone’s regional champion bank. Look back four years to the first quarter Jain recalls: “We shut down prop trading He will face plenty of questions on the of 2008 at the start of the financial crisis. completely, scaled back on exotic derivatives bank’s plans to build its fully loaded Basle Deutsche had a 4.3% share of the global and securitizations. We shuttered businesses III core equity tier 1 ratio: how far can it investment banking fee pool, according to that together accounted for one-third of our raise equity organically now that plans to Dealogic. The combined shares for Bank of revenues but it was fundamentally necessary. sell its global alternative asset management America and Merrill Lynch were 9.1%. JP- Then in 2010, with project Integra, we drove division appear to have foundered? Can it Morgan, then the top-ranked firm, enjoyed much closer connectivity of the wholesale sell or mitigate more risk-weighted assets a 7.5% market share. Goldman Sachs had businesses, for example with combined cover- without hurting the bank’s earnings and 6.4%. age for the global transaction bank and the profits, and what return on tangible com- At the end of the first quarter of 2012, investment bank.” mon equity can the bank generate if market Deutsche Bank had lifted its share far more It is not the only bank to have responded and regulatory demands on banks continue than any of those firms, to 5.6%. It still lags to the new normal by reducing proprietary to require higher ratios? behind JPMorgan, which has increased share risk and breaking down the old silos but What new plans does the bank have for more marginally to 7.9%. The combined it has executed particularly well. When its retail banking businesses in Germany and Bank of America Merrill Lynch now comes Deutsche Bank formed a joined-up corporate abroad? Which will it grow and which sell? in at 6.2%. Deutsche has pulled above Gold- and investment bank in 2010, it set itself the And how will it fix the asset management and man Sachs, whose share has fallen to 5.3%, target of generating €500 million of synergies wealth management businesses? and also above Morgan Stanley. So although within a year. This was a formidable task yet If the present macro-uncertainties in markets are tough, at least Deutsche Bank in 2011 the bank exceeded that target. Europe continue to intensify and if wholesale can say it is winning. In its most recent quarterly results, clients continue to reduce activity and avoid “The silver lining of a bad macro picture Deutsche Bank’s newly renamed corporate risk, it could be a tough time for Jain. and a tough, but understandable, regulatory banking and securities division had bounced It’s probably just as well, therefore, that picture is that the industry is finally consoli- back from the near closure of investment the corporate banking and securities division dating,” Jain says. “Some firms are starting banking markets in the second half of 2011 that Jain ran before taking over as co-chief to scale back in certain businesses and even to show €5.2 billion of revenues and €1.7 executive of the whole bank and built up withdrawing. A lot of liquidity was injected billion of pre-tax profit, with a cost-income over a 17-year career at Deutsche, is in such into the system in 2008 and 2009, so many ratio of 65% and a return on equity of 26%. good shape. The bank has long been in the firms remained active, and 2009 and 2010 Perhaps a more useful period to exam- Reprinted from Euromoney July 2012 www.db.com Awards ine is the full-year 2011 for which, after a For so long people in our share, especially when those traders are set- dire second half and a fourth-quarter loss, business concentrated on ting up global macro hedge funds, operating the division still managed €14.9 billion of across geographic markets and asset classes, the flow and ignored the revenue, €2.9 billion of pre-tax profit and a which is what many of the ex-Goldman pro- 16% return on equity: numbers that many of tail risks. Now all that prietary traders, for example, are now doing. its peers would kill for. anyone seems to think But it is in the corporate client sphere, par- Jain’s expectation is that his successors run- about is the tail risk, rather ticularly in the US and Asia, that Rankin sees ning the corporate banking and securities divi- most progress at Deutsche Bank. He says: than the mean. There’s a sion as its co-heads, Colin Fan, head of mar- “The adjacency of corporate finance, markets kets, and Robert Rankin, head of corporate lot of good news that’s not and global transaction banking helps us gain finance, can continue where he left off. “We priced in new clients and win market share across all are fully committed to all aspects of the invest- of those businesses. For instance, we can float ment bank,” says Jain, “and any changes will Anshu Jain the business of a company owner in Hong be modest. There will be short-term ebbs and Kong, then offer the client other services like flows in profitability, driven by client volumes. transaction banking and trade finance, which But what we have built will be structurally sets us apart from several key competitors in viable in a post-Basle III, post Dodd-Frank, risk averse and not inclined to deal for the investment banking.” post-Volcker world, with a return on equity rest of this year? “A prolonged slowdown Traditionally, Deutsche Bank’s share of target in the mid to high teens.” will further test the stamina of certain banks the global investment banking fee pool looks Jain takes pride that the formidable intel- and raise the question for how long they can better when M&A, ECM and DCM volumes lectual firepower assembled among bankers carry their less profitable investment banking are higher in Europe than in the Americas inside Deutsche’s markets businesses in the divisions.” Deutsche, Jain suggests, has shown and Asia. In recent quarters it hasn’t been, heyday of financial innovation is now trained that it can pick up share in tough markets but the bank has still improved its market on solving client problems rather than devising and still earn a decent return. share by picking up business in the US and ever more exotic derivatives for its traders. especially Asia. He singles out the €12 billion longevity obert Rankin is a relative In the past 12 months Deutsche Bank has hedge for Aegon (see page 58). “Pension newcomer to the tight-knit been a joint bookrunner in the largest-ever funds are struggling to cope with long-term team around Jain who have IPO of a jewellery retailer globally, for Chow longevity exposure. That was an example of worked for years building Tai Fook Jewellery in a $2.1 billion offering taking the financial technology we had built up the corporate and invest- in December 2011; the largest-ever healthcare up over a long time and using it to create a Rment bank, converting its European debt IPO in Asia, for Shanghai Pharmaceuticals, customized client transaction. And there are markets business into a corporate finance with a $2.1 billion offering in May 2011; the many other examples.” leader and slowly building up in the US, largest insurance IPO globally in 2011, for As well as running a more client-focused traditionally the graveyard for ambitious New China Life on a $1.9 billion offer last operation, all banks will now have to run European investment banks. December; the largest-ever Reit IPO in Singa- much more efficient ones, and cutting costs Rankin, an Australian, joined Deutsche in pore, for Mapletree Commercial Trust, with is another focus for those smart minds. Jain 2009 in Asia, having run investment banking a $764 million deal in April 2011; and the says: “We have to manage expenses and so for UBS there. While taking lead respon- largest gaming IPO globally since 2009, with we’re taking our technology know-how and sibility for corporate finance in the new MGM China’s $1.6 billion offering last May.