Deutsche Bank will need to justify its big hiring soon
While most banks are tempering their appetite for new recruits in 2023, Deutsche Bank is not. After hoovering up much of Credit Suisse's London credit trading team in late 2022, Deutsche has continued to hire from the Swiss bank and elsewhere this year. 2023's hires have been focused on investment bankers: Fabrizio Campelli, head of Deutsche's corporate and investment bank, says 50 senior bankers have been added this year.
There's little sign so far that they've had an impact. Financial News reported yesterday that Dealogic's figures show Deutsche's global investment banking revenues falling 35% year-on-year in the first half of 2023. The only bank where they've declined by more is UBS, which is weighted down by the addition of Credit Suisse's withering contribution.
Deutsche Bank is due to report its second quarter results on July 26th. Its results for the first three months of the year showed the post tax return on average shareholders equity at 7.4% for the bank as a whole and 8.5% for the investment bank. That looks low. Hossein Zaimi, Barclays' head of markets for Asia told Bloomberg earlier this month that a return of less than 10%, even in a down market is dangerous: “If you don’t achieve that return in this market at this bottom of the cycle, you don’t have the oxygen, you die, or you don’t go very fast.” Zaimi declared. “Once you don’t have the right return, your shareholder will tell you either cut capital, or stop investing in tech.”
Deutsche Bank appears less perturbed at the imminence of this prospect. It declined to comment for this article, but is known to be targeting a return on tangible equity of 10%, just not until 2025.
This year's and last year's hires are therefore a longer term play. Campelli told Financial News the bank has been hiring cheaply and at rates that,"that were particularly attractive compared to the challenge of taking on that talent two or three years ago.” M&A bankers are never productive immediately, but they will need to justify their existence soon. If things haven't improved by this time next year, things are going to start getting awkward.
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