Deutsche Bank tack­les debt-trad­ing unit as Cryan seeks cost cuts

The Pak Banker - - COMPANIES/BOSS -

Deutsche Bank AG co-Chief Ex­ec­u­tive Of­fi­cer John Cryan is over­haul­ing the fixed-in­come di­vi­sion his pre­de­ces­sor built as he seeks to boost profit and cap­i­tal. Michael Or­maechea, a se­nior ex­ec­u­tive for the di­vi­sion in Asia, will lead an ex­ec­u­tive com­mit­tee over­see­ing the busi­ness, ac­cord­ing to an in­ter­nal memo ob­tained by Bloomberg. The unit's prod­ucts and ser­vices are be­ing di­vided into six main groups, with lead­ers for three of them re­port­ing to Colin Fan, co-head of cor­po­rate bank­ing and se­cu­ri­ties, the memo showed.

Cryan, 54, who re­placed co-CEO An­shu Jain last month, has sig­naled he will shrink the in­vest­ment bank amid more than 11 bil­lion eu­ros ($12 bil­lion) of mis­con­duct costs. Ger­many's largest bank is un­der pres­sure to over­haul its se­cu­ri­ties unit to re­spond to stricter cap­i­tal rules and a slump in debt trad­ing that eroded some of the most prof­itable busi­nesses.

"This used to be the big earn­ings gen­er­a­tor, but the time has come to slim down and fo­cus on ar­eas that are sus­tain­ably prof­itable," Michael Seufert, a Hanover, Ger­many-based an­a­lyst at Nord­deutsche Lan­des­bank, with a hold rat­ing on the shares. "They were wait­ing for a re­vival, but that just hasn't hap­pened and Cryan may be able to make cuts where his pre­de­ces­sor couldn't be­cause he was so at­tached to the busi­ness." The nine largest in­vest­ment banks in­clud­ing Deutsche Bank saw their com­bined rev­enue from trad­ing fixed in­come, cur­ren­cies and com­modi­ties fall 7 per­cent to $68.4 bil­lion last year, a sec­ond an­nual de­cline, data com­piled by Bloomberg show.

Un­der the new man­age­ment struc­ture, Ah­met Arinc will con­tinue to lead for­eign ex­change, while Tom Hart­nett and Sam Wis­nia keep their roles lead­ing rates trad­ing, ac­cord­ing to the memo. Tom Humphrey, who heads the in­vest­ment bank unit in North Amer­ica, will serve as in­terim head of flow credit and dis­tressed prod­ucts. All four, as well as Or­maechea, will re­port to Fan.

Joe Randazzo, who is based in New York, will lead global liq­uid­ity man­age­ment, and Michelle Neal, a for­mer No­mura Hold­ings Inc. banker, will over­see listed de­riv­a­tives and clear­ing as well as fixed-in­come mar­ket struc­ture. David Lynne, who was head of the rates busi­ness in Asia, is lead­ing the fixed in­come and cur­ren­cies di­vi­sion in the Asi­aPa­cific re­gion, ac­cord­ing to the memo.

"This new gov­er­nance struc­ture will en­sure clear ac­count­abil­ity within each prod­uct, al­low greater ef­fi­ciency and op­er­a­tional ex­cel­lence across prod­ucts," Fan wrote in the memo, which was sent to staff last week.

Un­der Jain, who rose through the ranks of Deutsche Bank's in­vest­ment bank af­ter join­ing in 1995, the len­der in­creased av­er­age eq­uity at the se­cu­ri­ties unit by 37 per­cent to 32.5 bil­lion eu­ros in the sec­ond quar­ter from a year ear­lier to win mar­ket share as com­peti­tors re­trenched from debt trad­ing.

While Deutsche Bank's debt trad­ing busi­ness re­bounded, it has yet to re­gain its pre-fi­nan­cial cri­sis lev­els. The busi­ness gen­er­ated 4.75 bil­lion eu­ros of rev­enue in the first half, down from 5.57 bil­lion eu­ros in the first six months of 2012 and 6.24 bil­lion eu­ros in the same pe­riod of 2007, its fil­ings show.

Cryan, who suc­ceeded Jain, 52, at the be­gin­ning of July, has since called costs "un­ac­cept­ably high," with a "con­tin­u­ing bur­den of heavy lit­i­ga­tion charges." The di­vi­sion's ex­ec­u­tive com­mit­tee will fo­cus on ar­eas in­clud­ing strat­egy, costs, per­son­nel, con­duct and con­trols, ac­cord­ing to the memo. The six prod­uct groups also will have their own pan­els track­ing risks, rev­enue and fi­nan­cial re­sources.

Richard Her­man, Deutsche Bank's global head of fixed-in­come trad­ing, told em­ploy­ees in May he was leav­ing af­ter 20 years at the com­pany to pur­sue in­ter­ests out­side of fi­nance. The an­nounce­ment came a month af­ter Deutsche Bank dis­closed plans to re­duce the size of the in­vest­ment bank.

Changes to Deutsche Bank's debt trad­ing busi­ness also re­flect "the is­sue of get­ting a real han­dle on com­pli­ance in the trad­ing busi­ness and avoid­ing a re­peat of the reg­u­la­tory fines which have hit the bank," said Seufert.

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