Deutsche Bank gives hope to traders everywhere, but isn't paying
Traders in investment banks should listen very hard to Deutsche's third quarter conference call.
Firstly, Stefan Krause, Deutsche's CFO, confirmed during the call that things have been much, much better since the start of September.
"Equity volumes were up significantly in September, as were rates and FX," said Krause. "Flow credit and cash equities saw a revenue surge of 50% compared to July and August."
Secondly, Krause painted a reassuring picture of an environment in which margins are definitely falling, but volumes are definitely recovering.
"There's been a significant pick-up in the second half of September and growth in volumes has partially offset the fall in margins compared to last year," soothed Krause, adding that third quarter margins were 44% lower than in the same quarter of 2009.
Thanks to September's greatness, top line figures suggest Deutsche did rather well in the third quarter: its sales and trading revenues were down only 4% year-on-year compared to double digit falls at most other banks. Structured rates solutions did particularly well; equity derivatives did particularly badly.
However, 'clean figures' from analyst Jon Peace at Nomura suggests Deustche's performance wasn't that exceptional: equities revenues were down 21% year-on-year, compared to an industry average decline of 23%; FICC revenues were down 19%, against an industry average decline of 22%. And IBD revenues were down 3%, in line with the rest of the industry.
Deutsche Bank investment bankers possibly deserve to be paid more, but won't be
Despite their comparatively mediocre relative performance, Deutsche's people have reason to expect higher pay.
This is because, unlike many other banks, Deutsche has succeeded in increasing the profits at its investment banking arm so far this year.
While net investment banking income was down 49% year-on-year in the first nine months at Credit Suisse, 29% at Goldman. 29% at Citi and 41% at JPMorgan, Deutsche managed to increase its income 41%.
Only Morgan Stanley surpassed this, with an increase of 91%.
Nevertheless, accrued pay per head at Deutsche corporate and investment banking arm is currently down 4% year-on-year, at €285k. This is in stark contrast to UBS, where profitability went through the floor, but pay per head is currently up 14%.
Deutsche's investment bankers may also want to note that their division appears to be at the forefront of future cost cutting. The presentation accompanying the conference all shows that most cuts in 2011 and 2012 are due to come in corporate banking and securities.
Source: Deutsche Bank
(CB&S=Corporate banking and securities)
