24th June 2024

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Deutsche Bank’s investment bank profit drops 44% despite dealmaking surge

Deutsche Bank’s investment bank profit dropped 44% in the second quarter, as its fixed income unit dragged down revenue despite a surge in dealmaking fees.

The German lender posted revenue of €2.4bn within its investment bank in the second quarter of 2023, above market expectations but down 11% compared with a year earlier. Pre-tax profit of €576m was down 44%, but also ahead of analyst predictions.

The revenue decline was down to a 10% fall in fixed income and currencies revenue, which makes up the vast majority of revenue within its investment bank.

Deutsche Bank is making a renewed push in investment banking to reduce its reliance on fixed income trading, hiring around 50 bankers so far this year in a hiring spree out of kilter with its US rivals, which have been culling thousands of employees. Its origination and advisory business brought in €291m during the second quarter, which was 25% up compared with a year earlier as the German lender benefited from a resurgence in debt capital markets activity.

Deutsche’s new investment banking push is based on gaining market share in M&A and equity capital markets. During the second quarter, its advisory unit brought in €92m, a decline of 71%, which was a bigger drop than its Wall Street rivals, while equity underwriting revenue dropped 33%.

READ Deutsche Bank eyes ‘game-changer’ AI in dealmaking unit

In a note to staff, Deutsche chief executive Christian Sewing said that despite an 11% fall in investment bank revenue the bank can “absolutely hold our own with these results and we have further increased our market share in some core areas”.

The origination and advisory business “plays a key role in our growth strategy”, he added.

Deutsche now has 3,547 employees in ‘business aligned’ units within its investment bank, an increase of 18% compared with the first half of 2022. Compensation costs reached €1.3bn in the first six months of 2023, an increase of 5%.

Deutsche Bank has capitalised on the fallout from the collapse of rival Credit Suisse, hiring scores of senior bankers as the Swiss bank integrates with UBS after its March emergency takeover. The German lender has hired managing directors from Credit Suisse in London and New York as part of an overall recruitment spree that has seen it bolster its M&A and ECM capabilities.

Deutsche’s chief financial officer, James von Moltke, told journalists that the bank is seeing “green shoots” after a drought in dealmaking that has seen a 26% fall in fees so far in 2023. As well as the hiring spree, in April Deutsche Bank bought City broker Numis for £410m in a major boost to its UK investment banking ambitions that will add 125 dealmakers to its team in one fell swoop.

“Whether it is the Credit Suisse dislocations or other opportunities like Numis, we are taking advantage of the current lull, to try to invest and build our platform to take advantage of the upswing when it comes,” he said. “You need to invest one or two years before the upswing in order to be really ready with your people and client dialogue. So, we are pleased to have this opportunity, but it is really history that we are betting on that the cycle comes back.”

Despite the dealmaker hiring spree, Deutsche is cutting around 800 back office roles in a bid to continue to cut costs. It said that it has saved €100m from the cuts and that 80% of affected staff had either been informed or left.

Fabrizio Campelli, head of Deutsche’s investment bank and corporate bank, told Financial News previously that it had hired dealmakers “at terms that were particularly attractive compared with the challenge of taking on that talent two or three years ago”.

The push in advisory is an attempt to diversify Deutsche’s investment bank revenue away from its reliance on fixed income trading and debt capital markets activity towards high-returning, low-capital functions like M&A and equity fund raising.

At Goldman Sachs, investment banking fees dropped by 20% during the second quarter, with M&A slipping by 46% for the period. Citigroup’s dealmaking revenue fell by 24% for the period, while JPMorgan’s declined by 6%.

Deutsche Bank currently ranks 11th by investment banking revenue globally, according to data provider Dealogic, with a 1.9% market share. This is down from eighth and a 2.1% share at the same point last year.

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To contact the author of this story with feedback or news, email Paul Clarke