Deutsche Bank investment bankers might escape "strategic" cuts
Following last week's results announcement in which it became apparent that Deutsche Bank's fixed income trading revenues began flagging in Q4 while its investment banking revenues remained low, and in which the bank announced additional "incremental cost savings" while refusing to rule out job cuts, Bloomberg reports that the bank's UK CEO is contemplating new "strategic" cuts in London.
Given the 74% year-on-year decline in debt capital markets (DCM) revenues in 2022, it might be presumed that some of these cuts will come in DCM, particularly after the German bank was already spied cutting a few people in leveraged finance before Christmas and as the ECM cracks down on Deutsche's leveraged loan activities.
We can't speak for DB's leveraged financiers in particular, but if you're a DCM banker in London right now, you might want to refer to a report released last week by DB research analyst Benjamin Goy. Looking at deals done in January, Goy detects the first signs of a recovery.
In investment grade capital markets, Goy notes that fees across the market were at their highest since March 2022. In high yield, he notes that they were at their highest since January 2022. Goy says this could be an indication of things to come: during the COVID crisis of early 2020, he notes that investment grade DCM recovered first and was a leading indicator for the strength in equity capital markets (ECM) and M&A later in the year, as per the chart below.
Under what Goy describes as this "glass half full" analysis, the implication is that if Deutsche just holds onto its investment bankers for a few months longer, they may start justifying their existence again.
This is the hope. At the same time, however, it's hard to describe January 2023 as a good month for investment banking fees. - As Goy also notes, fees at most banks and for most products were down significantly on last year. It's worth remembering, too, that Deutsche Bank's UK business has long been overweight managing directors (MDs) and that DB MDs are an unusually hefty deadweight after the bank skewed their compensation in favour of higher salaries a few years ago.
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