Deutsche Bank's U.S. fixed income business is being quietly squeezed

Even great warriors like Achilles have their imperfections. Accordingly, scattered among the happy presentations of Deutsche Bank's investor day are a few wistful slides giving pause for thought. This includes a chart in Christiana Riley's presentation suggesting that Deutsche Bank's Americas fixed income trading business is not what it was.

Riley is CEO of Deutsche's business in America and, for the first time (as far as we're aware), she today broke out exactly how DB's investment bank allocates capital to its investment bank in the U.S., as per the chart below.

Source: Deutsche Bank

Riley clearly included the chart to emphasize the great work Deutsche Bank has done in increasing returns at the investment bank in the Americas. - Two years ago they were a miserable 2%. Now, following the closure of the equities business they're 9%. By 2022, they'll be around 11%.

The equities business was a big suck on Deutsche Bank's returns: it was a "resource drag" and the capital it consumed "was significant," said Riley today. Deutsche Bank is better off rid of its, "underperforming leverage-intensive equities platform."

Riley didn't actually say so, but Deutsche's U.S. fixed income trading business has also had its wings clipped. In 2018, the business had €5bn of capital allocated to it. This year, that's down to €3.7bn. In 2022, it will be down to €3.5bn. - A fall of 30%.

It's a reminder, that even as Deutsche Bank's fixed income traders get excited about the prospect of higher bonuses for 2020, the future will still be tough. If Deutsche's New York fixed income traders are to keep growing the business in line with CEO Christian Sewing's ambitious plans, they'll have to do more with less. Other banks are admittedly in a similar situation - but they don't have a 7% compound average growth target to reach. 

Photo by Charles Deluvio on Unsplash