Deutsche Bank expands hiring ahead of expected investment banking turnaround in Asia

SINGAPORE – Deutsche Bank is selectively increasing headcount in divisions such as investment banking and private banking ahead of what it believes could be a rebound in those areas.

This comes four years after the German bank executed a major restructuring that saw it cut costs and hive off unproductive divisions to focus on four core divisions in 2019, president and chief financial officer James von Moltke told The Straits Times in a recent interview.

The move involved splitting corporate banking and investment banking into two separate business lines alongside private banking and asset management.

But Mr von Moltke admitted that the bank may have pulled back too much in some areas, and there is a need to re-establish these to maintain market position in what it had defined as core businesses.

With the current slump in mergers and acquisitions (M&A) and capital market deal flows having slowed, the bank now sees opportunities to hire good people to beef up its investment banking division.

This comes as other major lenders like Goldman Sachs and Morgan Stanley laid off staff in their deal-making units, after over-expanding before the Covid-19 pandemic. The demise of Credit Suisse has also led to an exodus of investment bankers and relationship managers.

Mr von Moltke estimates that as many as 400 such professionals have been laid off in Asia alone.

This has allowed the bank to add around 50 senior people globally to its investment bank in four to five months, with about a third based in Asia, underlining the region’s importance to the German giant.

Deutsche Bank has two hubs of operation in Asia, one in Hong Kong serving North Asian markets and the other in Singapore, which serves South-east Asia and India.

In Singapore, the bank occupies a major portion of One Raffles Quay’s 29-storey South Tower, housing more than 2,000 staff.

Among its four core businesses, the private, corporate and investment banking arms account for the lion’s share of the headcount.

The investment banking industry as a whole has been experiencing a rough patch, as reflected in a June report by Refinitiv.

It showed that investment banking fees in Asia-Pacific excluding Japan fell 20 per cent year on year to US$12.8 billion (S$17.2 billion) for the first half of 2023, its lowest level since 2020.

Deal-making activity in the region, meanwhile, tumbled 37.5 per cent year on year to US$340.6 billion in the first six months of 2023, as earnings from M&As sank to their lowest point in a decade, the Refinitiv data showed.

Deal flows in the capital markets have also been hit.

Proceeds from equity capital markets were down 17 per cent year on year to US$112.3 billion for the same half-year period, with new issues plunging to a two-year low.

DBS analyst Lim Rui Wen said deal activity has been weak as the global appetite for initial public offerings has softened.

Meanwhile, debt capital markets retreated 13 per cent to US$1.86 trillion over the same period, as primary bond offerings decelerated in the wake of 2022’s record high, according to Refinitiv.

Maybank Securities equity research head Thilan Wickramasinghe said that “investment banking fees contribute a larger portion to overall fee income for global banks in Singapore”.

He also noted that “there could be some downside impact on overall earnings for these banks from a slowdown in investment banking”.

However, Mr Wickramasinghe felt that with the possibility of averting a recession during the current cyclical slowdown in economic growth gaining more traction, there could be an increasing appetite for funding and M&A activities as companies position for growth.

“Together with improving market valuations, we think there should be opportunities for deal volumes to rise going forward,” Mr Wickramasinghe said.

Deutsche Bank is positioning itself for that potential turnaround.

Mr von Moltke estimates that the mountain of idle cash around the world could amount to trillions, all waiting to be put to work.

“As refinancing needs build, someone will be the first to step up, and the others will soon follow suit,” he said.

In July, the bank reported profit before tax of €3.3 billion (S$4.87 billion) in the first half of 2023, up 2 per cent year on year. Net revenues were up 8 per cent to €15.1 billion over the period.

The investment banking division contributed €5.1 billion to the bank’s total net revenues in the first half, which is down 15 per cent compared with the year before. Income generated by fixed income and currencies was down 14 per cent year on year, while revenues in origination and advisory declined 13 per cent.

Mr von Moltke noted that the origination and advisory segment had undergone about four quarters of weakness following the start of the war in Ukraine in 2022, which dented corporate confidence.

However, such downturns do not usually last more than six quarters, which provides the bank with some measure of optimism, he said, adding: “We are past the bottom now – the business segment will likely bounce back, maybe in another quarter or two.

“Key decision-makers are coming to terms with the environment of greater inflationary pressures and higher interest rates, which is why the market is starting to see a return in client activity.”

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