Deutsche Bank Finds Comfort in Mega-Bond Deals as Revenue Falls

(Bloomberg) -- Deutsche Bank AG says it’s focusing on quality rather than quantity in the primary bond market.

The lender highlighted work as a lead bookrunner on seven of the 10 largest bond sales worldwide this year, after reporting an eighth straight decline in companywide quarterly revenue. Fixed-income trading tumbled 23 percent in the last three months of 2018, while debt origination had a “significant decline” amid a marketwide slowdown.

“While we pulled out of peripheral areas in 2018, we are committed to growing certain areas of our Corporate Finance business in 2019,” Chief Executive Officer Christian Sewing said in a letter to employees posted on the bank’s website.

Deutsche Bank’s once-market leading share of Europe’s syndicated bond sales has tumbled as the Frankfurt-based lender narrows its focus toward investment-grade corporates, financial issuers and non-U.S. high-yield dollar borrowers. The bank is seeking to follow a similar path to UBS Group AG, which cut supranational and agency businesses, and reined in trading activities to focus on wealthy clients following a near-death experience during the financial crisis a decade ago.

Deutsche Bank’s global deal tally this year includes dollar bond sales by Anheuser-Busch InBev Inc. and Fox Corp. In the euro market, it’s worked on deals for International Business Machines Corp. and Volkswagen Bank GmbH, as well as hybrid sales for Energias de Portugal SA and Engie SA. Still, the bank’s 10.4 billion euro underwriting figure for Europe was only just enough to scrape into January’s top 10, according to Bloomberg League Table data.

Police Raid

While the bank has cut operations, the drop-off in underwriting and fixed-income trading may not be all entirely planned. Chief Financial Officer James von Moltke said Friday that a police raid in November “absolutely impacted” the overall business in December. The lender has also been focusing on cutting jobs and overhauling operations, while the possibility of a forced merger with Commerzbank AG hangs over management’s heads.

“I would suspect that while they are looking to manage downsizing and restructuring, business is walking out the door,” said Jonathan Tyce, senior analyst for EU banks at Bloomberg Intelligence. “You have to wonder how Deutsche Bank can break the vicious circle of damage to franchise and revenue loss from never-ending cost cuts.”

Still, the bank cited a possible market bounce-back as reason for optimism. That comes after a slowdown last year that hurt key areas for the company in leveraged and high-yield markets.

“Our debt origination business has started 2019 well and we have a good pipeline for conversion in the first quarter,” von Moltke said on an earnings call.

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