Deutsche ‘bloodbath’ leads to major cuts in Asian ECM team

The German bank announced the “radical” transformation on July 7, as it aims to reduce costs by a quarter by 2022 and slash its investment banking operations, cutting about 18,000 jobs globally. That will reduce the workforce to 74,000 by 2022, a cut which one senior rival described as a “bloodbath”.

The restructuring has been a long time coming, but the extent of the upheaval has shocked many bankers in Asia, with one former Deutsche banker describing the mood in the office as “grim” on Monday.

Another banker, who is still with the firm, said of the Hong Kong office: “All the meeting rooms were booked, and people were called into the room one by one. Each had 10 minutes and then they lost their access [to the office] immediately. The whole office is full of negative energy.”

Among the hardest hit is the ECM unit. Deutsche’s Asia ECM team has been trimmed to just the bankers working on existing deals, who will ultimately be let go in the coming three-to-six months, according to multiple sources close to the situation.

Hong Kong, as the bank’s Asia Pacific equities hub, has suffered more losses compared with other areas in the region such as Singapore, which is Deutsche’s fixed income base.

Among those heading out of the door is Deutsche’s Hong Kong-based head of ECM for Asia Pacific, Jason Cox, according to the sources. Cox could not be reached and the bank declined to comment.

Cox joined the bank in March 2016 from Bank of America to co-head ECM in the region with Kefei Li. But Cox became the sole lead when the business was rejigged and merged with the strategic equity transactions group in December 2017.

Deutsche’s Australia ECM team has also left, GlobalCapital Asia understands.

“Deutsche has been a sinking ship for a while,” said a Hong Kong-based ECM banker at a rival firm, referencing the resignation last month of Ed Sankey, the co-head of EMEA ECM and global head of equity syndicate. Sankey is expected to resurface at HSBC.

A senior ECM banker at a US firm in Hong Kong added: “They haven’t really been around for the last six-to-nine months. The issue is: what are the residual people going to do?”

In India, the bank’s ECM team was already operating with “skeletal resources”, so any impact from the cuts will be limited in the country, according to a senior ECM banker in Mumbai. Local ECM head Sanjay Sharma, for example, resigned in June 2018.

“Deutsche in India had reduced substantially in terms of activity and resources, at least on the investment banking side,” said the Mumbai-based banker.

The firm has worked on just three Indian ECM deals over the past year-and-a-half, ranking 15th based on the $499.5m of league table credits, according to Dealogic.

Over the same period, Deutsche ranked 18th by funds raised across Asia Pacific ex-Japan, Dealogic data shows.

However, Deutsche has won positions on a handful of blockbuster IPO mandates in the past year, including as a global co-ordinator on the Hong Kong listing of AB InBev’s Asian business Budweiser Brewing Company Apac. It was set to raise about HK$65.2bn ($8.3bn) on Thursday, 2019’s largest float year-to-date globally, after pricing at the bottom of the guidance.

“There will be some impact to competition,” said the banker at the rival firm. “Deutsche was also on some high profile deals in southeast Asia in the past year, including Vinhomes’ IPO in Vietnam.”

A former Deutsche banker, now with a Chinese firm, said: “Deutsche has still got on some lucrative deals, they are still a bulge bracket. Although they are not as strong as US banks, they got on the Budweiser IPO.”

The bank has kept its Japan ECM team, while also retaining its equity-linked origination business, which in Asia is led by Karen Pang, who moved over in April 2018 after a short spell at BNP Paribas. Pang worked with Deutsche equity-linked veteran Keyvan Zolfaghari until his departure to Goldman Sachs in June the same year.

The banker at the Chinese firm added the cuts are a signal to the market of what could also happen at other banks.

The banker still at Deutsche said: “A lot of investment banks have had lay-offs in the past few years; it just took us a longer time to do the same thing.”

Ultimately, the hit to the German lender was “not unexpected”, said a Hong Kong-based banker with a European firm, adding that the “challenging environment” is motivating many banks to look at their business models.

Deutsche is planning to reduce adjusted costs by €6bn to €17bn over the next three years. The overhaul is going to cost Deutsche €7.4bn by 2022, including impairments, restructuring costs and severance payments. This year alone, the costs will come to about €5.1bn.

The overhaul includes cutting Deutsche’s equities sales and trading business, reducing the amount of capital used by the fixed income sales and trading business (particularly rates) and winding down its existing non-strategic portfolio. The bank is looking to reduce risk-weighted assets allocated to these businesses by about 40%.

However, Asia Pacific chief executive officer Werner Steinmueller said to the bank’s regional staff in a memo on Monday: “The strength of our service offering and our wide network covering 14 markets in Asia Pacific is a competitive advantage for Deutsche Bank globally and we remain absolutely committed to this region.”

While the sweeping plan was made public this month, some staff in the equities business have known their jobs were in danger for weeks, particularly in equity research in Asia, which is ultimately being cut entirely, according to a source with direct knowledge of the matter.

“Anyone who survives today is on borrowed time,” a Manila-based Deutsche banker added. “It’s very depressing.

“Some of us will be needed for a couple of years for a dead-end job winding it all down. It will take us a few weeks to figure out a plan,” he added.

Additional reporting by Rashmi Kumar