Deutsche Bank's Other Crown Jewel
Here's an idea for Deutsche Bank AG.
It's not as crazy as it sounds. While Chief Executive Officer John Cryan tries to keep a lid on costs following three straight annual losses and trims as many as 500 jobs globally, Asia is looking better than it has in years.
Equities trading is improving, thanks to the region's buoyant emerging economies, and hedge-fund clients are coming back. Last June, Asia-Pacific equities head James Boyle signaled that global client balances at the bank's prime brokerage unit had started to climb from 2016 lows and predicted they would reach new highs. The investment bank has long been strong in shifting off-balance-sheet loans to hedge funds, which with the return of volatility are increasingly back in business.
In a region dominated by local banks that make plain vanilla lending their main business, Deutsche Bank, along with Credit Suisse Group AG, has always stood out for its structured finance offerings. Foreign-exchange trading may still face some challenges, but loan structuring is picking up. Don't forget that many of Deutsche Bank's former executives in that area are now over at SoftBank Group Corp., weaving their magic for Masayoshi Son.
Investment banking, too, is getting a boost from the sorts of deals Deutsche Bank is known for. The $6.6 billion of SoftBank bonds exchangeable for Alibaba Group Holding Ltd. shares it organized with Morgan Stanley in 2016 was listed by capital markets magazine IFR as one of the most-profitable structuring deals ever. Deutsche Bank also recently helped advise Tencent Holdings Ltd. on its $5 billion note issue.
In M&A, Deutsche Bank, which is 8.8 percent owned by China's HNA Group Co., last month advised Orient Hontai Capital on its 54 percent acquisition of Spanish television and film producer Imagina. Having lent funds to Xiaomi Corp. several times, it also stands a good chance of getting a look in on the smartphone maker's highly anticipated Hong Kong share sale.
To be sure, the Frankfurt-based institution is unlikely to get back the No. 1 spot in investment banking in Asia any time soon, a position Coalition data show it held as recently as 2015. The lender has also slipped in the U.S. rankings and is struggling to retain second place in Europe.
An Asian spin-off would also mean losing direct access to the bank's broader corporate banking franchise. That's arguably more important than ever. Companies want their financiers to have one leg in Europe, particularly at a time when President Xi Jinping is using his consolidated power to push ahead with his favorite Belt and Road initiative.
Still, in Asia, Deutsche Bank has proved more resilient than many expected. Bonuses are back at 2015 levels, after the deepest-ever cuts in 2016. The days of large layoffs in Singapore and Hong Kong are also probably over.
Deutsche Bank plans to sell a 25 percent stake in DWS that could be valued at as much as 2 billion euros ($2.5 billion), people familiar with the matter said this week. With concerns over the lender's financial health not entirely put to bed, perhaps Asia is another crown jewel Cryan could consider unlocking.
-- With assistance from Elaine He.
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Katrina Nicholas at email@example.com