If 2019 has imparted any lessons, it's that it's a good idea to do some deep research before plunging into a new job. After all, anyone who joined Deutsche Bank's equities division in 2018 is probably regretting it now.
The latest charts from banking intelligence firm Tricumen explain why Deutsche Bank CEO Christian Sewing felt the need to take such drastic action. As shown below, operating costs/revenue in Deutsche's equities division were wildly out of kilter (in a bad way) with the rest of the industry in the first half of this year. So too was the out of amount of revenue generated per member of front office staff in DB's equities business. Deutsche had diverged so far from the norm on both measures, that remedying the situation looked almost impossible.
Operating costs/income, first half 2019, equities by bank
Operating revenues/full time employees, first half 2019, equities by bank
The good news is that Tricumen's charts suggest no other bank was in as dire a situation at Deutsche Bank when it came to equities operating costs as a proportion of revenues in the first half. - DB was the outlier. Although Tricumen suggests that Standard Chartered, RBC, HSBC, UBS, Credit Suisse and Citi each generated a below average level of revenues with their equities headcount over the period, their costs were somehow bounded.
Where else, then, could big cuts come? Tricumen's charts for fixed income currencies and commodities (FICC) businesses and for investment banking divisions (IBD) show some distinct candidates.
They include: SocGen's FICC division, which Tricumen says is afflicted by both higher than average operating costs per unit of revenue, and by far lower than average revenues per unit of front office staff. Credit Suisse's 'banking' division (equity capital markets, debt capital markets, M&A) also looks like an outlier on both the IBD charts below.
This isn't to say that either bank will definitively wield the axe in the style of Sewing. Banking is a famously volatile business and just because two quarters were bad, it doesn't mean the next two won't be good. Credit Suisse has finished restructuring its investment bank and global markets division and has been praised for the results. - It's also said that its investment banking deal pipeline is skewed towards the latter half of this year. Meanwhile, SocGen is seemingly aware of its cost issue and is already extracting €500m in costs and 1,600 jobs from its investment bank, including latterly from its investment banking division in Frankfurt. The French bank declined to comment.
Nonetheless, Tricumen's charts - which are based upon the firm's proprietary data and are not validated by the banks concerned - might prompt pause for thought. In a world where every bank can no longer afford to be involved in every business, they help illuminate where it makes sense to make wholesale cuts - if and when CEOs are minded to do so.
Operating costs/income, first half 2019, IBD by bank
Operating revenues/full time employees, first half 2019, IBD by bank
Operating costs/income, first half 2019, FICC by bank
Operating revenues/full time employees, first half 2019, FICC by bank
Photo by Liam Macleod on Unsplash
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