Deutsche bank to recruit rookies in bid to revive equities unit

Bloomberg

Peter Selman, hired out of retirement by Deutsche Bank AG to turn around Wall Street’s worst-hit equities business, wants to tap universities rather than rivals to do so.
“We certainly have holes to fill and we’re hiring,” Selman, an ex- Goldman Sachs Group Inc. partner who joined the German lender in November, said in a phone interview. “But we’re going to focus a lot on graduate recruiting. I don’t think the path forward is one where we make a lot of very high-priced, expensive lateral hires.”
Selman, 45, will need all the help he can get as he seeks to revive a stocks unit where revenue has fallen for 10 quarters in a row, leaving it 39 percent smaller than it was two years ago. The division has struggled with management changes, a lack of volatility in markets and fears over Deutsche Bank’s stability that prompted some clients to go elsewhere in 2016. New European rules that effectively force banks to charge for research separately from broking services aren’t helping.
Concerns about the scale of the challenge, which mirrors that at the overall investment bank and is complicated by renewed scrutiny of Deutsche Bank’s expenses, are reflected in a share price performance that’s dead last among European banks in the past year.
Yet Selman, who joined in November, is optimistic that this year will mark the turning point.
“I am focussed on growing revenue and prudently managing expenses to improve profitability,” Selman said.
“I think 2018 will be a lot better than 2017.”

WORST PERFORMANCE
Selman oversees a division that deals in stocks and equity derivatives, and a prime brokerage unit that services hedge fund clients. Revenue from equities trading was 2.1 billion euros ($2.6 billion) in 2017, about 8% of Deutsche Bank’s total. Along with hiring graduates, Selman said he will invest in Bank’s technology to help recover what’s been lost, he said. The lender needs a “best-in-class electronic platform,” which will be a long-term investment focus, he said. It already has good products for derivatives clients, he said.
“Peter is saying that they’re not going to buy their way out of this, because they can’t,” said Oliver Rolfe at Spartan International, a London-based recruiter that focuses on equities trading. “The only way to do it is to be like an Ajax or a Tottenham Hotspur. Invest in youth, get them involved in the mentality and direction of the firm, and in seven to 10 years time you’ll have a fully-fledged business.”
Chief Executive Officer John Cryan, 57, had largely exempted the equities business from the downsizing that hit fixed-income trading when he took control at the Frankfurt-based lender in mid-2015. He promoted the then-head of the business, Garth Ritchie, to run the overall markets division and said he wanted to invest in cash equities and the prime brokerage. Yet stock-trading revenue has fallen year-on-year in every quarter since, including a 25 percent tumble to 332 million euros ($407 million) in the final months of last year.
Deutsche Bank’s equities performance in the two years through 2017 is the worst among large global investment banks to so far report full-year earnings, according to Bloomberg calculations. Societe Generale SA and Goldman Sachs, where Selman was co-head of equities until 2016, suffered declines of about 16%. Credit Suisse may report a plunge of about 38 percent, according to an estimate from HSBC Holdings analyst Alevizos Alevizakos.
The equity unit’s performance “is another crack in the wall,” said Michael Huenseler, who helps oversee 22 billion euros, including Deutsche Bank shares, at Assenagon Asset Management in Munich. “Cryan has failed to revive the business as promised.”

‘TRADING UNDERPERFORMANCE’
There are plenty of reasons for the decline. Looming large over the performance is the period in late 2016 when fears over Deutsche Bank’s ability to pay its legal bills prompted hedge fund clients to yank funds out of the prime brokerage.
A series of senior departures since 2015, meanwhile, unsettled the division, a person familiar with the matter said. Trading chief Andre Crawford-Brunt, global sales co-heads Jonny Potter and Derek Capanna, and prime co-head Murray Roos have left. Rob Ebert, who led the business in Asia Pacific, was convicted in 2016 of dangerous driving causing death after a fatal collision in Hong Kong.
In cash equities — the trading of regular stocks for clients — investors are doing more business with non-bank intermediaries, Cryan told analysts and reporters Feb. 2 after the firm reported earnings. Deutsche Bank’s trading business was also singled out in a report last year as being most at risk from Europe’s sweeping MiFID II rules, which came into effect last month.