Deutsche Bank Covets Top Rates Role as Credit Suisse ShrinksNicholas Comfort
Deutsche Bank AG wants to remain one of the largest fixed income and derivatives traders globally in anticipation of higher profitability as competitors shrink, co-Chief Executive Officer Anshu Jain said.
The return on equity “in that business will stabilize to cover and indeed comfortably exceed cost of equity for the top firms,” Jain said on a conference call with analysts after the Frankfurt-based bank published third-quarter earnings today. “Deutsche always has been one and we intend to remain one.”
Jain, 50, was responding to a question by Jernej Omahen, a London-based analyst with Goldman Sachs Group Inc., about whether Deutsche Bank would follow Credit Suisse Group AG, Switzerland’s second-biggest bank, in shrinking part of its rates business as more stringent leverage rules made it more expensive.
Jain’s pledges come as he prepares to divest some assets within the business as part of a plan to increase the bank’s leverage ratio, or capital as a share of the balance sheet. Deutsche Bank merged its rates and credit trading arms this year to reduce costs, Jain said.
Banks that run profitable fix income and derivatives businesses while managing their own leverage stand to profit, according to Jain.
“What you’re seeing is a tremendous concentration of market risk among the top few firms,” Jain said. “These are things which our clients desperately need and will always need.”
The market for bilateral rates trades is “shrinking fast” as investors use central clearing houses instead, Credit Suisse Chief Financial Officer David Mathers said on a conference call with journalists last week. The Zurich-based bank’s reorganization will “certainly” result in job losses, he said, declining to provide numbers.
Deutsche Bank said in July that it will reduce its total assets by 250 billion euros ($344 billion), or 16 percent, by 2015, in part by dissolving some derivatives transactions with other securities firms. The company will lose 450 million euros to 500 million euros in annual pretax profit should all the measures in its “leverage toolbox” be implemented, Chief Financial Officer Stefan Krause said on the call today.