Fixed-income traders to keep jobs, says Deutsche Bank's Ram Nayak

Deutsche Bank AG fixed-income head Ram Nayak assured staff they will keep their jobs at his business even as the lender cuts 18,000 positions in a sweeping overhaul, according to people familiar with the matter.

The bank’s move to “resize” debt trading operations won’t lead to dismissals, Nayak told colleagues on a conference call on Monday, the people said, asking not to be identified as the matter isn’t public. A day earlier, Deutsche Bank had announced plans to exit equity sales and trading as part of a far-reaching overhaul.

Fixed income has been a traditional strength of Deutsche Bank’s investment banking activities. The lender has earmarked more than 20% of its balance sheet to be wound down or sold to free up capital to invest in more profitable businesses. While the equities unit accounts for the majority of holdings to be moved to the new capital release unit, the lender is also hiving off long-dated assets in its interest rates business as well as securitized bonds.

Deutsche Bank doesn’t disclose how many people work for its equity and fixed income businesses. The wider corporate and investment bank division employed 38,305 people at the end of March, of which 17,117 were in front-office positions such as traders and salespeople.

In a sign of Deutsche Bank’s commitment to the business is paying off, it has climbed to second place in a Euromoney global ranking of currency traders. The bank ranked eighth last year.

Deutsche Bank generated 5.36 billion euros ($6.01 billion) of revenue from dealing in bonds and currencies last year, making the business its second-largest source of earnings. Stock trading supplied less than half that amount.

What's Non-Core?

Deutsche Bank shares were up 2.6% as of 2:11 p.m. in Frankfurt. The stock closed down both Monday and Tuesday after the overhaul was announced on Sunday.

Nayak himself is a survivor, having seen senior colleagues come and go in his decade at the bank. His taking over of the fixed income and currencies business also marks something of a comeback: he was replaced by John Pipilis last year as head of fixed-income trading. Pipilis is set to leave.

Nayak previously worked at Credit Suisse Group AG before joining Deutsche Bank in 2009 as head of global markets structuring. He joined the executive committee of its global markets business, the first time a banker acceded to that group immediately upon hiring. He reported to Anshu Jain, who went on to become co-CEO of the bank three years later.

In a sign of fixed income’s importance, Nayak reports directly to Chief Executive Officer Christian Sewing even though his business is located in the investment bank, run by Mark Fedorcik.

Deutsche Bank says it has a top five market position in 75% of the investment banking businesses that it’s keeping. The bank will “refocus on clients where we have a competitive edge” and invest to stabilize its business and then grow, according to slides it published on its website on Monday.

“We will continue to be a leader in the debt financing markets across investment grade, leveraged finance, asset-backed securities and commercial real estate,” Sewing said on a call with reporters on Monday. “We will continue to have one of the top FX businesses in the world and continue to be a trusted adviser to our corporate and financial sponsor clients.”

Big axe falls as Deutsche Bank to lay off 18,000 in $8.3 billion overhaul

Deutsche Bank laid off staff from Sydney to New York on Monday as it began to slash 18,000 jobs in a 7.4 billion euro ($8.3 billion) "reinvention" that will lead to yet another annual loss, a plan that knocked its already battered shares.

Germany's largest lender said on Sunday it will scrap its global equities unit and cut some fixed-income operations in a retreat from a long-held ambition to make its struggling investment bank, with 38,000 staff, a force on Wall Street. Deutsche Bank has almost 91,500 staff around the world.

Its shares erased early gains and closed down 5.4 per cent in Frankfurt after its finance chief flagged "significant uncertainty" over breaking even in 2020. Its bonds also fell. US-listed shares dropped 6.1 per cent.

Some analysts were sceptical that the bank could grow future earnings quickly enough to reach a new target to achieve a return on tangible equity of 8 per cent by 2022, compared with a negative return last year.

"The question of where the real earnings power will come from for Deutsche Bank going forward has not been answered," said David Hendler, an independent analyst at New York-based Viola Risk Advisors. "It's doubtful whether they will be able to build a better bank in just three years."

Ratings agency Fitch said that the bank's future credit rating will depend on how successfully it executes the plan. Fitch downgraded the bank to "BBB" status, the lowest investment-grade status, just last month.

"The restructuring measures involve large staff cuts and significant leadership changes, which could disrupt the aim to improve core earnings," it said in a note published Monday.

Rating agency Moody's said there were "significant challenges" to executing the plan swiftly, adding it would keep its negative outlook.

"It's a risky manoeuvre, but if it succeeds, it has the potential to bring the bank back on course," said a person close to one of the top 10 shareholders.

JP Morgan analysts called the plan "bold and for the first time not half-baked" but questioned the credibility of execution, revenue growth and employee motivation.

The bank said on Sunday that it would not need to raise capital to initiate the cuts, which will result in it making a loss of 2.8 billion euros in the second quarter. It will not pay a dividend either this year or next.

Hundreds of employees at the bank's Wall Street office were summoned to the building's cafeteria on Monday morning to learn their fates, sources within the bank told Reuters. During one-to-one meetings with management and human resources, they were told they were being laid off and informed of their severance terms, the sources said.

Deutsche Bank had been one of the few European banks to maintain a significant presence in the United States after the 2007-2009 financial crisis. However, it has struggled to compete with US rivals, hampered by regulatory investigations and litigation.

Reinventing the Bank

The United States had been seen as a likely focus of the cuts although the bank maintained it wants to keep a significant presence, in part to service European corporate clients doing business in the country. However, some shareholders have pushed for a full US retreat.

Deutsche Bank said it remained committed to the United States, its second-biggest market.

"We will retain a significant presence here and remain a close partner to our US clients and to international institutions that want to access the US market," it said in a statement.

In London, where hundreds of job cuts were expected, Chief Executive Officer Christian Sewing said he was "reinventing" the bank, which is expected to post a loss this year. That would put it in the red for four of the past five years after a series of damaging setbacks.

Founded in 1870, Deutsche Bank has long been a major source of finance and advice for German companies seeking to expand abroad or raise money through the bond or equity markets.

Big cuts to its investment bank reverse a decades-long expansion that began with its purchase of Morgan Grenfell in London in 1989 and continued a decade later with a takeover of Bankers Trust in the United States.

The investment bank generated about one-half of Deutsche Bank's revenues but is also volatile. CEO Sewing, who flagged the restructuring in May after a failed merger attempt with Commerzbank, wants to focus on more stable sources of revenue.

"We are creating a bank that will be more profitable, leaner, more innovative and more resilient," Sewing wrote in a note to staff on Sunday.

As part of the overhaul, Deutsche Bank will set up a so-called "bad bank" to wind down unwanted assets, with 74 billion euros ($83 billion) of risk-weighted assets.

'Pretty Gloomy'

Deutsche Bank did not give details on the job cuts, but said they would be spread around the globe, including in Germany.

In Sydney, Hong Kong and elsewhere in the Asia-Pacific region, where Deutsche Bank used to rank among the top 10 in league tables for equity capital market (ECM) deals, several bankers said entire teams in sales and trading were going.

Deutsche Bank's Asia-Pacific head of ECM, Jason Cox, left, and ECM teams were disbanded in Japan, Australia and most of Asia, people with direct knowledge of matter said, adding that only a few syndicate bankers, including those working on current deals, will remain.

Deutsche Bank had slipped in recent years in Asia, hitting 17th last year and 18th in 2019, Refinitiv data showed. So far this year, it ranks 8th regionally for merger-and-acquisition activity.

"The new investment bank will be smaller but more resilient, with a focus on our financing, capital markets, advisory services and sales and trading businesses," Asia-Pacific CEO Werner Steinmueller said in a staff memo.

One laid-off equities trader in Hong Kong said the mood was "pretty gloomy" as people were called into meetings. "They give you this packet and you are out of the building," he said.

Several workers left offices holding envelopes with the bank's logo. Three employees took a picture of themselves beside a Deutsche Bank sign outside, hugged and then hailed a taxi.

"If you have a job for me, please let me know. But do not ask questions," said one Deutsche employee.

One senior banker, still with a job, questioned how well the slimmed-down franchise in Asia would compete.

"Will clients stick with us, or is the game over?"