Deutsche Bank's UK trading heart faces long care-out

Frankfurt - For the better part of this century, Deutsche Bank’s trading heart has been beating in London. Now, it’s gradually being transplanted to Frankfurt.

Europe’s largest securities firm is preparing to turn Frankfurt into its global booking centre, a shift that may entail moving large parts of the trading and investment-banking assets it currently books in London to its hometown, according to people briefed on the plans.

Several hundred traders and as many as 20 000 client accounts will probably be shifted, said another person.

The plan, driven in part by the UK’s vote to leave the European Union, marks the clearest step yet by chief executive officer John Cryan to break with efforts by his predecessors Anshu Jain and Josef Ackermann to turn the lender into a top global investment bank.

Cryan, who has spent the past two years scaling back capital-intensive debt trading and settling misconduct cases that occurred mostly before his arrival, is reorganizing the investment bank to emphasise its corporate business in its home market.

"Deutsche Bank is saying good-bye to its global ambitions," said Markus Riesselmann, an analyst with Independent Research who has a buy recommendation on the stock.

"If implemented in full, the plan would be part of Cyran’s promise to make Deutsche Bank more German."

Under Jain, the former investment banking head who was promoted to co-CEO in 2012, debt trading revenue soared to almost €10bn in 2010 or more than one third of Deutsche Bank’s overall revenue for the year. That share fell to below one quarter last year as revenue from buying and selling fixed-income securities came in at €7.3bn.
Power shift

People in the German trading unit under Jain frequently chafed at the fact that London called the shots even though the business was legally headquartered in Germany, said a former Deutsche Bank managing director who worked under Jain and Ackermann.

Several people at Deutsche Bank in Frankfurt, who spoke on condition of anonymity, expressed satisfaction that the focus is shifting back to the bank’s hometown, while employees in London say they’re worried about reductions in their portfolios, a person familiar with the matter said.

Deutsche Bank is still investing in the UK Its wealth management unit recently hired a new head, Michael Morley, and it’s aiming to add more client-facing staff on the assumption that the implications of Brexit may help it attract new business. Deutsche Bank’s investment bank co-head and UK CEO, Garth Ritchie, said in March that the planned lease of a new building for its British headquarters was a "commitment to the City of London."

But Cryan has acknowledged that the appointment of Marcus Schenck as deputy CEO of the bank and co-head of the investment bank is intended to highlight the bank’s turn toward Germany. Schenck, who is based in Frankfurt, is the first German to lead the investment banking unit since Ackermann embarked on his quest to turn the bank into a global powerhouse.

Key appointments

A recent reorganization of the investment bank into six business lines underscores the return to Deutsche Bank’s home market, with leading roles going to two Frankfurt-based bankers: Stefan Hoops, who now co-heads the Institutional Client Group; and Alexander von zur Muehlen, the new co-head of the Capital Markets Group.

The appointments mark the first time at least since Jain’s tenure that the global oversight for some of the bank’s trading operations, which are still its largest source of revenue, sits in Frankfurt.

Brexit, which is likely to end the ability of banks to operate throughout the European Union from London, has been a driver as well in Deutsche Bank’s planning. If Britain were to lose passporting rights granted to EU members, Deutsche Bank would probably have to turn its London branch where it books most of its UK investment-banking business into a subsidiary that would require capital, according to one person.

"German banks already have people, office space and infrastructure in Frankfurt. Bundling assets there makes sense to avoid duplication," said Max Floetotto, a partner in the financial services arm of the consultancy McKinsey & Co.

He added that a move on the scale planned by Deutsche Bank would be "a long-term decision that can’t be as easily reversed as Brexit decisions by other banks."

The plan for the Frankfurt booking centre is still being finalized and would be reviewed if the Brexit scenario changes, the people said. It will probably be implemented over the next 18 months. Hundreds of people in back-office functions, particularly in risk management, may also be affected, according to a person briefed on the matter.

Deutsche Bank’s chief regulatory officer Sylvie Matherat said in late April that the bank is going through Brexit planning for the about 2 000 client-facing staff and 2 000 risk management staff it employs in the UK.