Frankfurt Deutsche Bank hopes to end the mergers and acquisitions slump and is hiring new people in this area. “We have hired about 25 senior M&A advisors in recent weeks for Germany, Europe, North America and certain strategically important industries such as consumer goods and energy,” said Fabrizio, board member responsible for the corporate and investment bank Campelli the Handelsblatt.
“We also plan to hire more as part of our investment program,” added Campelli. The new hires stand in contrast to the savings that the bank is planning on non-customer background work. There, for example, jobs are to be cut by automating processes, including the jobs of 800 higher-ranking employees.
To date, the Bank’s Origination and Advisory business has played a comparatively minor role compared to bond and foreign exchange trading. Retail revenue will be nine times higher than consulting revenue in 2022. That should change now.
“We want to expand the area of Origination and Advisory, more precisely strategic advice for corporate customers. The area is strategically important for us because it contributes to our global house bank strategy and requires little equity,” said Campelli. He is alluding to the fact that the bank has to use far more equity as a safety buffer for activities in the trading and financing business, which has been dominant to date. The lower the capital employed, the higher the return on the capital employed.
CFO James von Moltke made it clear when presenting the quarterly figures last Thursday that the bank wants to take a close look at how high the equity requirement for certain activities is in relation to the achievable income.
Deutsche Bank benefited from tax effect
Because the institute wants to increase its after-tax return on tangible equity to ten percent by the end of 2025. Last year, the institute had achieved a return of eight percent, but owed this largely to a one-off tax effect.
The stronger focus on a good return on equity is already noticeable in a number of points. The bank has already announced that it intends to scale back its mortgage lending business, partly because the equity requirement for real estate loans has increased. In investment banking, the bank has again reduced its financing in the area of leveraged loans because these high-risk loans for private equity firms also require a high level of equity capital.
More on the subject:
The expansion in the non-capital-intensive consulting business fits with this reorientation of the bank – and the timing for hiring is good in Campelli’s view. “You have to pay less for good people now than you did a year ago,” he said.
However, the advance of the money house in the M&A area (mergers and acquisitions) is not a matter of course: After all, the slump in this market caused revenue to shrink by more than 60 percent to almost one billion euros last year. And in the first quarter of 2023, too, the institute took in around a third less than in the first quarter of 2022, at EUR 327 million. That corresponded to 38 percent of the income from the investment banking division.
“Our strategic consulting business revenue has fallen less than the average for our competitors,” said Campelli. According to data provider Dealogic, the bank’s market share has risen by 0.7 percentage points since the third quarter. The bank wants to more than double its market share in the M&A sector to 4.5 percent, as the head of the consulting division, Mark Fedorcik, told the “Financial Times”.
Fedorcik’s boss Campelli is now also seeing the first signs of a trend reversal in the market. “The decline in the fee pool in the consulting business seems to have stopped after four quarters of decline.” “We expect the business to recover from the third quarter of this year,” said Campelli.
Deutsche Bank buys investment boutique Numis
The bank also showed its ambition on Friday by taking over the British boutique investment bank Numis. Numis is active as a stockbroker, among other things, but also offers stock analysis and advisory services for company takeovers.
For Deutsche Bank, the takeover is the most important transaction in years, especially in investment banking. Actually, Deutsche Bank had trimmed investment banking in order to strengthen stable business areas such as corporate and private customer business.
JP Morgan analysts Kian Abouhossein and Amit Ranjan called the deal “surprising” and “very explainable.” How skeptically many investors still view large investment banking units at credit institutions was also shown by the price reactions of bank shares during the price turbulence in March, when first the Silicon Valley Bank went bankrupt and then Credit Suisse had to be rescued through an emergency merger. At that time, the shares of Deutsche Bank and Barclays in particular had suffered, since both institutes are relatively heavily involved in investment banking.
Deutsche Bank is offering Numis shareholders 350 pence per share, valuing the company at £410 million. The Numis Management Board recommends that its shareholders accept the cash offer. Deutsche Bank expects the transaction to close in the fourth quarter of 2023 and expects it to be accretive to earnings per share as early as 2024.
More: Head of Human Resources at Deutsche Bank faces a fine after buying a bond