Deutsche bank seems to be pinning its hopes on maintaining a presence in equity capital markets by paying up to keep its top bankers.
Sources Deutsche has moved quickly to retain its senior ECM bankers and in some cases Deutsche is understood to have offering $2m pay packages to retain them. “They can afford to pay a few people a lot of money so they can still prove they have an equity capital markets (ECM) business. Some of their big German clients will demand it. Paying a few bankers is a lot less than having the entire equities infrastructure,” said one former UK banker familiar with the plans. A second Deutsche source said the bank does not have a formal retention policy in place, but will look to keep its best people.
The German bank closed its global equities business as part of its restructuring at beginning of July, leaving only a small secondary effort to support its ‘focused ECM’ strategy.
Deutsche has already sold its prime broking and electronic equities business to BNP Paribas and has also put its equity derivatives business on the block. Exiting global equities will enable the bank to cut €170bn of the planned €260bn of reductions to risk-weighted assets.
Against the backdrop of such cuts, seasoned ECM professionals say Deutsche will be unable to compete, something that EMEA ECM head Josef Ritter has also admitted to the Financial Times. Big banks use their equity sales trading and research efforts to support corporate clients and win big rights issues or IPO mandates.
Deutsche argues that it can serve its top relationships with a slimmed-down presence without a global sales and trading operation and points to the rise of passive funds and electronic trading as evidence that the notion of big banks being ‘in the flow’ is an outmoded one.
But there’s not much sign of success so far. Since Deutsche announced its the restructuring, its ECM team worked as global co-ordinator alongside Morgan Stanley and Citi on the $190.4m initial public offering of Wanda Sport, which tumbled 36% on its Nasdaq debut at the end of July. Few expect Deutsche to maintain a credible presence against Wall Street titans like JP Morgan and Morgan Stanley and Goldman Sachs, which dominate the market.
In Europe, the Middle East and Africa, Deutsche has slumped to 13th in the ECM rankings in EMEA, a far cry from its top three status a few years ago. It is acting as global coordinator on the IPO of Verallia, a mandate it clinched before the restructuring.
In the UK, rivals are circling Deutsche’s roster of corporate broking clients. Corporate broking is a peculiarly British pursuit where banks act as long-term advisers to boards on every aspect of its equity – from being ‘in the flow’, to helping underwrite capital increases.
The question is whether Deutsche biggest clients, which include Barclays, Rio Tinto and Unilever will want a corporate broker that does not trade in their stock.
Corporate broking is a people business, and Deutsche will know rivals will pay good money to lure away bankers that can being blue-chip clients with them.
In the U.S., Deutsche's ECM business is run by Jeff Bunzel, who joined in 2012 from Credit Suisse. In the UK, Deutsche has a highly-rated team that includes the likes of Charles Wilkinson, Simon Gorringe, Matt Hall and Nigel Meek. Wilkinson and Gorringe work in corporate broking and Meek holds the bank’s relationship with British American Tobacco which continues to give Deutsche investment banking mandates. Last week, Deutsche acted as a joint bookrunner on BAT’s $3.5bn corporate bond.
Deutsche’s old guard are sitting pretty in terms of stock options and it will cost the bank more to get rid of them than to retain them. So they may just be happy to see out the next few years before heading off into the sunset. Meek, for example, spends just a few days in the office and flies a light aircraft in his spare time.
In the run-up to the bank’s restructuring, Ed Sankey, who ran European ECM with Ritter, quit to join HSBC. With Ritter at the helm, there’s an inescapable feeling that it will only be a matter of time before Deutsche’s ECM business will be a strictly German affair.
And when that happens Meek and his colleagues may finally take flight.
Photo by Pepi Stojanovski on Unsplash
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