Christian Sewing has spoken. Deutsche Bank's austere new retail and private banking CEO has presented his first set of quarterly results and proclaimed his intention of restructuring the corporate and investment bank. It will happen. Following criticism that his predecessor John Cryan was all strategy and no execution, Sewing endlessly reiterated today that he wants Deutsche to be a place that makes, "bold moves", that does not "agonize over decisions once taken", and that doesn't get lost in the long grass of stakeholder involvement.
Something certainly needs to be done. As the chart below shows (hover on each bank to see the results), Deutsche's corporate and investment bank (CIB) was one of the worst performers in every business area in the first quarter when revenues are compared to last year. In equity capital markets (ECM), revenues fell 50%, mostly due to a failed block trade. In equities, where U.S. banks achieved double digit percentage revenue increases, Deutsche mustered a 21% revenue decline. Return on equity in the CIB shriveled to just 1.5% from a feeble 3.4% one year earlier. Revenues fell 13% and profits fell 74%. All was pain.
Sewing and Deutsche CFO James von Moltke had plenty of excuses. Q1 2017 was a good quarter, they said, making comparison tough. The 15% appreciation of the euro against the dollar eroded U.S. revenues when they were converted back into euros. Equities sales and trading revenues were actually flat year-on-year if a one off gain in Q117 and "funding allocations" are omitted. The poor performance in fixed income currencies and commodities (FICC) was more a function of Deutsche's business mix (it doesn't have commodities sales and trading) than actual poor performance....
Even so, and in line with Deutsche's new identity as a bank that does things, changes will be made. In future, Sewing said only 35% of revenues should come from investment banking activities (sales and trading, advisory, capital markets), with more coming from the private and commercial bank and asset management. In the first quarter of 2018, 42% of Deutsche's revenues came from the investment bank. - Either Deutsche needs to shed around €500m of investment bank-related revenues, or other business areas need to step up.
Whether Sewing's commercial and private bankers come good or not, cuts in the investment bank are on the cards. Sewing and Von Moltke said today that "significant capacity reductions" are required, and outlined where these are likely to take place. The worst places to work at Deutsche Bank in the light of these reductions are listed below. It's not all bad, however: the two men stressed Deutsche's continuing commitment to the CIB and promised to invest in areas they consider core. Some jobs will be perfectly secure under Deutsche's new leadership...
The four Deutsche Bank jobs that will be safe under Sewing:
- European rates trading. Deutsche really likes its European rates traders. Led by Kemal Asker, who joined from J.P. Morgan in 2014, it's been growing recently by hiring from Goldman Sachs. The European rates trading business is bigger than the U.S. one and achieves better result. It will therefore be maintained.
- IBD roles involving German and European clients who are active overseas. You'll also be fine at DB if you're working in an investment banking division (IBD) role that involves European (and particularly German) clients operating in Europe or overseas. Deutsche Bank wants to be the "leading European corporate and investment bank," said Sewing. This means having exposure to the U.S. (and Asian) market, but only to the extent that doing so supports European clients.
- Prime broking roles dealing with key clients. While banks like J.P. Morgan and Morgan Stanley have built thriving equities trading businesses on the back of prime broking, Deutsche's prime broking business has never really regained momentum after clients pulled funds in the panic relating to the DOJ fine in late 2016. The bank is now jettisoning any aspirations to be a big prime broking player and just wants to focus on key clients. Now is the time to work with large hedge funds, or not at all.
- Jobs at Deutsche's CIB in Germany. Now is also the time to work for Deutsche in Frankfurt. With proposals to make it easier to fire German bankers without huge severance packages yet to be passed into German law, it's simply too expensive to cut bankers in Germany. "Restructuring will fall outside Germany," said Sewing, because outside Germany it can be, "implemented more readily."
The six Deutsche Bank jobs that stand to disappear or be "rationalized" away:
- U.S rates sales and trading. Remember when Deutsche Bank was busy hiring for its U.S. rates business four years ago? It's had a change of heart. The U.S. rates business will be "significantly reduced" said Sewing today. In fact, people have been dribbling out anyway.
- Prime broking roles dealing with peripheral clients. Now is not the time to work in Deutsche's prime broking business if your clients are small hedge funds struggling to get by. (See above.)
- U.S. and Asian corporate finance jobs that are purely focused on U.S. clients. Now is also not the time to work for Deutsche's investment bank if you're focused on local U.S. and Asian deals. It's not clear where this leaves all those U.S. bankers hired by Deutsche in areas like healthcare last year. The Financial Times says cuts in the U.S. business are already happening: 300 U.S. based bankers at DB were fired yesterday. More U.S. layoffs are to come.
- U.S. cash equities jobs. Sewing's strategy for equities seems intentionally vague. The equities business is being "scrutinized by the board," but the outcome remains unclear. Even so, you might not want to work in U.S. cash equities at DB now given the heavy competition from more established players like Morgan Stanley and J.P. Morgan. By comparison, Deutsche said today that the U.S. equity derivatives business did well in the first quarter.
- Contractor roles. Deutsche Bank has been cutting contractor roles ever since John Cryan announced strategy 2020 in 2015. They remain a target under Sewing. The banks says that, "expenses for external providers...are set to decline worldwide."
- Infrastructure roles connected to any of the above. Now is not the time to work in product control for the U.S. rates business. Nor is the time to work in client services in prime broking if you spend your time dealing with tiny hedge funds run on a shoestring.
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