All three investment banking products saw double digit declines. Debt underwriting was down 53%, equity down 25%, and advisory down 38%. Loans was down 18%.
It’s not just that these numbers are bad (though they are pretty horrific). It’s that everyone else seems to have done so much better.
Advisory has been booming at all the big US firms, (between 6% and 27% up) following a record year for M&A volumes, mainly out of the US. Sure, maybe Goldman owns that business, but Deutsche shouldn’t be slacking.
Dealogic, at least, has the bank sixth in the global revenue table for M&A during 2015 — it shouldn’t be lagging the market this much.
Just as worrying is the DCM disaster. 53% down is seriously poor for a bank which regards itself as a bonds powerhouse. The US firms had an ugly quarter — JP Morgan was 43% down, for example — but somehow Deutsche has gone above and beyond.
The results presentation does offer some answers. Rather than the usual platitudes about lower client activity, it says that numbers reflected lower risk appetite, "particularly in leveraged finance", alongside "lower activity in origination and advisory markets and lower market share in certain segments".
Risk allocated to leveraged finance is the engine for a whole suite of investment banking product lines — M&A and bonds have a lot to do with risk appetite in levfin — so cutting risk here means the knife has gone through all the fat, and is starting on the muscle.
The grimness hit the trading businesses as well. Fixed income trading is still the bread and butter of Deutsche’s wholesale bank, and was down 16% to €947m — the first quarter since the crisis, and likely long before, that it’s come in under €1bn.
Credit solutions was down, but emerging markets, perhaps surprisingly, was up. Equity trading was down 28% to €520m, and got hit by “challenging risk management in certain areas”. One wonders, naturally, what sort of sin that phrase conceals.
Perhaps “challenging risk management” is just being on the wrong side of a big trade?
Been there, seen it, Denat
In other bank restructuring news, a couple of appointments from Credit Suisse stood out this week. Didier Denat, who co-ran sponsors coverage, is moving to the Swiss universal bank to run the Solution Partners unit.
“Solution Partners” is typically a content-free piece of IB org chart nonsense, but it refers to a small group of veteran investment bankers who cover the extremely wealthy, offering individuals or families access to wholesale finance products more usually pushed to corporates.
The unit has been around for a few years, but cross-selling between private wealth businesses and the investment bank is what Credit Suisse is all about now — when the bank outlined its new strategy in October, all the investment banking product lines were graded on their usefulness to wealth management.
In Asia, too, it’s all change. The bank’s former head of Asia-Pacific financing, Carsten Stoeher, is rejoining the bank from Standard Chartered to lead a new unit offering “strategic financing” to the very rich.
GlobalCapital is slightly baffled as to how this approach will change things. The super-rich, particularly those at the front of Denat’s rolodex that run private equity firms, surely have plenty of bankers at their beck and call? But focuses on specific niches and targeted business can’t be a bad thing.
Bonus corner
There’s a spooky silence on external people moves, however, with bonus season still very much underway. Banks might be making their plans for staffing, but can’t move until their chosen hires get paid.
GlobalCapital is hearing mixed messages on pay so far, but a few themes have come out. Looking after juniors is at the top of the list. Banks seem to increasingly be basing their business lines on a solid bench of quality juniors for execution and a slim sprinkling of revenue-producing seniors. The middle of the structure — senior VPs, junior directors — is being pared down.
The other big theme seems to be more differentiation than ever before. Bonus pools aren’t big enough to really look after the mid-range performers, and banks are said to be choosing to pay their top performers well and zero the merely adequate, rather than cut across the board.
So the main action is still internal moves. Two that caught our attention were Peter Diamond’s promotion to run Western European FIG flow at Deutsche Bank – that means senior debt, covered bonds, and RMBS.
A source close to the situation described it as “Mauricio’s old job”, referring to Mauricio Noé’s gig before his departure in June 2014. However, Noé had a global role rather than simply western Europe, doing trades such as Royal Bank of Canada’s first SEC-registered covered bond.
The other was Bob Paterson’s upcoming move to head credit sales for Lloyds. Paterson, who has been head of ABS syndicate, has already worked in research, sales and syndicate for Morgan Stanley, before joining Lloyds via HBOS in 2008.
Lloyds has been building both its ABS business and credit franchises over the last few years. Allen Appen joined from Barclays in 2014 as head of financial institutions capital and asset-backed solutions, while the bank hired several individuals into credit sales and trading in the US.
Regulation this week brought nothing too terrifying – only the chance to totally overhaul all of bank capital regulation.
A European Commission “group of banking experts” – nobody seems to know exactly who they are – has recommended overhauling the overlapping layer of capital regulation to have a single, unified regime for European banks.
It’s hard to disagree with the principle, and every banker and treasurer has been crying out for some simplicity over the past few years. But making such a change means reopening the Bank Resolution and Recovery Directive, Capital Requirements Regulation, Capital Requirements Directive IV and the Single Resolution Mechanism Regulation, and making changes to all of them at the highest level.
That might make the end state simpler but guarantees years of uncertainty, lobbying and political tussles.