Deutsche Bank Said to Merge Debt Groups as Top Trader LeavesLisa Abramowicz
Deutsche Bank AG is consolidating two debt-trading groups in London as it seeks to cut costs and riskier holdings, leading its head of European investment-grade bond trading to leave.
Vassilis Paschopoulos departed this month as continental Europe’s biggest bank combined its investment-grade debt and asset-backed securities trading units, according to two people with knowledge of the matter. The merged unit will be led by Nick Waring, said the people, who asked not to be identified because the moves haven’t been made public. Separately, two other credit traders, Alexis Serero and James Nowak, left the London office with plans to join competitors in September.
Nick Bone, a spokesman for the lender, said he couldn’t comment on the changes. Paschopoulos couldn’t be reached.
“These things tend to be driven by a combination of capital and cost cutting,” said Steve Hussey, head of financial institutions credit research in London at AllianceBernstein Ltd., a unit of AllianceBernstein Holding LP, which manages the equivalent of about $443 billion in assets. “All investment banks are under intense capital pressure but Deutsche Bank especially is at the sharp end given the growing focus on leverage ratios. It has a huge balance sheet, with a huge inventory, derivatives, repo.”
Deutsche Bank needs to raise 12.3 billion euros ($16.3 billion) in capital or reduce assets by 409 billion euros to comply with a proposal on leverage by the Basel Committee on Banking Supervision, analysts at JPMorgan Chase & Co. said in a July 4 note to clients. The Frankfurt-based bank’s equity accounted for 2.8 percent of its assets at the end of March, the lowest value of Europe’s major banks after France’s Credit Agricole SA, data compiled by Bloomberg Industries show.
The lender combined its investment-grade credit and interest-rates units in North America last year under Tom Hartnett as it emphasizes its electronic debt-trading platform and caters to investors who seek to buy both forms of debt.
Deutsche Bank has gained 11.3 percent this year, including reinvested dividends, trading at 35.92 euros today. That compares with an 18.6 percent return on the MSCI World Financials Index through yesterday.
Paschopoulos left Deutsche Bank after returning to the firm in 2011 from UBS AG, according to records maintained by the Financial Conduct Authority. He had an earlier six-year stint at the German lender before leaving in 2010.
Serero will join Citigroup Inc.’s London office in September as head of credit-default swaps index trading in Europe, Capucine Boncenne, a spokeswoman for the New York-based bank, said in a telephone interview. He will report to Tim Gately, head of credit trading in Europe, the Middle East and Africa.
Nowak, an investment-grade bond trader, plans to join Goldman Sachs Group Inc.’s London office in September, according to two people familiar with the matter. Tiffany Galvin, a Goldman Sachs spokeswoman, and Nowak said they couldn’t comment.
Deutsche Bank said in September that it would cut 4.5 billion euros of costs annually through 2015 by firing bankers, merging units and moving support staff to lower-cost locations. It unveiled a plan to cut almost 2,000 jobs last year, including 814 at its investment-banking and trading arm.
Antoine Cornut, who oversaw flow-credit trading in the Americas and Europe, left Deutsche Bank about a year ago and started his own hedge fund, while Nicholas Pappas, former co-head of flow credit trading for North America, left in September and joined Goldman Sachs as a managing director in London. Hartnett was named to oversee investment-grade credit in North America in addition to interest-rate products in the region.
Revenue from trading debt and other products, the biggest source of income at the firm’s investment-banking unit, dropped 14 percent to 2.73 billion euros in the first quarter from the same period a year earlier, company filings show. That compares with a 12 percent increase in equity sales and trading in the period, according to the filings.
Investment-grade bonds globally lost 1.9 percent during the first six months of this year, the greatest decline for the period since at least 1997, after gaining 45.5 percent in the four years after 2008, Bank of America Merrill Lynch index data show. Yields on the debt are rising as the Federal Reserve, the central bank of the world’s biggest economy, considers slowing unprecedented stimulus that has pumped $2.6 trillion into the financial system since the collapse of Lehman Brothers Holdings Inc. in 2008.
Primary dealers that do business with the central bank have reduced their net holdings of investment-grade bonds to $6.7 billion as of July 10, almost the same amount as their inventories of speculative-grade notes, which are gaining 3.4 percent this year, Bank of America Merrill Lynch index and Fed data show.
The high-yield bond market, with securities rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s, is less than one-fourth the size of outstanding higher-rated corporate debt.