The disquiet at Deutsche goes much deeper than coming FICC layoffs
Deutsche Bank is making redundancies. The German bank hasn't officially commented about the layoffs (and declined to comment for this article), but is expected to dismiss 500 investment bankers over the coming months. Most are expected to go in London.
Headhunters say the cuts won't be restricted to the under-performing fixed income division: equity derivatives professionals will also be targeted, allegedly. The UK's Financial Conduct Authority Register reveals that around 90 registered people have left Deutsche's London-based investment bank already this year. Alongside the inevitable credit traders and structurers, Deutsche's departed include several ETF professionals and juniors from the financial institutions M&A group.
However, it's the fixed income business at the German bank that looks most exposed long term. Garry Naughton, Deutsche’s (ex-)European head of government bond trading, left the bank in March, following the departure of Michele Foresti, Deutsche’s former European head of credit and rates trading. Foresti has gone to Bank of America. Naughton's destination is still unknown.
Analysts at Morgan Stanley predict that Deutsche's share of global fixed income sales and trading will continue falling long term. For a bank whose co-chief executive is heavily invested in its success as a fixed income player, this is a problem. Anshu Jain survived the LIBOR scandal thanks to an internal investigation which cleared him of any involvement in January. However, Reuters reports that traders who've left Deutsche have accused the German bank of cutting short an internal investigation into its LIBOR practices to avoid harming Jain.
The January suicide of William Broeksmit, a former risk manager at Deutsche is seen as a further blow to Jain. The two men met in Merrill Lynch's derivatives business in the 1990s, when Broeksmit was pioneering interest rate swaps and Jain was looking to sell more products to hedge funds. There, Jain and Broeksmit also met Edson Mitchell, the former head of global markets at Deutsche Bank, who died in a plane crash in 2000. The three men were instrumental in forming Deutsche's investment bank. At the time of his death, Broeksmit was allegedly concerned about the LIBOR enquiry and is said to have left a note addressed to Anshu Jain, the contents of which have not been made public.
The head of one international search firm, speaking on condition of anonymity, says the real issue at Deutsche is what happens when a weakened Jain leaves. "The fixed income business is Jain's baby," he says. "There's no one with the internal standing of Jain who is in a position to take over at the top level of the bank." The obvious option for Jain's replacement is Colin Fan, head of Deutsche's markets division and a credit trader by background. However, Fan is American and is unlikely to be popular with Deutsche's Frankfurt-based board.
"Anshu Jain has a strong record of past success at Deutsche Bank," says Andreas Plasier at Frankfurt-based Warburg Research, referring to Jain's historic success in building the fixed income division. "However, the guys on the second rung don't have the reputation that Anshu has. It could be difficult to have another co-CEO structure with an investment banker when Anshu goes."