So much for Deutsche Bank's once legendary fixed income division being insulated from the unprecedented layoffs sweeping across the bank.
Months after unveiling that double-digit percent of its equity-linked employees will be let go as part of an ongoing restructuring that has left the largest German bank looking like a pale shadow of its former self, Bloomberg reports that Deutsche Bank is now also considering "substantial cuts" to the unit that trades interest-rate securities, a division that survived unscathed the mass layoffs announced as part of the lender’s sweeping revamp in July.
CEO Christian Sewing has concluded that it’s possible to cut enough of the associated technology costs to outweigh the loss in revenue, Bloomberg sources report, adding that the bank will likely cut a low double-digit percentage of jobs at the business.
"We are committed to a robust and broad-based rates platform, and are investing in areas of our rates business where we see opportunities to grow our client franchise," DB spokesman Charlie Olivier told Bloomberg.
As a reminder, in early July we reported that the German megabank with trillions in derivative exposure unveiled a sweeping restructuring plan centered on pulling back from equities trading and cutting a fifth of the workforce. The lender said at the time that it wants to remain a “leading bank” in fixed-income trading, its traditional strength, but it soon became clear that adjustments were needed there, too.
Sure enough, the Frankfurt-based bank is currently putting the finishing touches on its review of the fixed-income division which has struggled with low profitability for some time, and findings could be presented at the bank’s investor day in December.
In rates trading, investors buy and sell products such as government bonds and derivatives to profit or protect themselves from macroeconomic developments that affect interest rates. It’s distinct from credit trading, where participants buy and sell debts and derivatives to wager on a company’s ability to repay loans.
As Bloomberg further adds, the rates business, which is headed by Kemal Askar, falls into many different geographic regions - including the U.S. - and includes a range of products - such as options or swaps: "Pulling out of any one of them only makes sense if the bank can eliminate associated costs of information technology."
“We are a significant player in rates, but rates is an area where we need to refashion the business model to make it more profitable and do so against the resources that we have there,” Chief Financial Officer James von Moltke said last month.
And as DB admits that no sacred cows are left, we expect that once the bank fires thousands in "rates" employees, then credit - the final frontier - will be next, as the bank - having no other options - is forced to target the costs of its most expensive division. Alas, the best traders there will hardly wait for the hammer to fall, and we expect an exodus of DB fixed income traders and analysts to ensue, as the division that once made Deutsche Bank the most respected bank on Wall Street, is dismantled.