- Deutsche Bank axed its derivatives and equities trading arms as part of massive job cuts but left its research function relatively untouched, and a memo leaked by one of the bank's hedge fund clients gives details on which jobs were spared.
- Deutsche will not touch its fixed-income research team, while its US and European Union research units will have slight cuts to their sales teams, the memo says.
- Deutsche Bank's decision to keep its research unit largely intact shocked insiders, sources say, since it has not historically had a strong reputation in that area. European regulations have also upended the research industry.
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Deutsche Bank surprised insiders by sparing big parts of its research division as it laid off tens of thousands of other workers and dumped equities and derivatives trading entirely. A leaked memo from one of the bank's hedge fund clients seen by Business Insider reveals the bank plans to hold on to huge swathes of the division.
"Deutche Bank management is focused on businesses with low risk and [that are] operationally stable - research being one of those businesses," the memo said.
In Europe, 95% of the research team will remain, the sales team will be cut slightly "and their scope has been narrowed to only sell/push research," the memo said. For US research staff, 85% to 90% will stay on with a smaller sales team. The entire Asia research business will shutter.
Deutsche Bank had said it would keep an equity and macro research capacity and a targeted equity sales force, but has not publicly detailed how much of the teams would be spared.
Insiders at the bank said they were shocked by the decision to focus on research. The move is especially notable given regulations in Europe that have split the industry between elite players and boutique firms.
"We will continue to provide the high quality independent Macro, Thematic, and Fixed Income Research for which DB is a known industry leader," a Deutsche Bank spokesman said in an email to Business Insider. "Quantitative Investment Solutions will also continue as will our primary research and data science work within dbDIG."
The Bank is also committed to providing extensive and top-quality Company Research coverage for key sectors in Europe and the US," the spokesman said.
Exiting equity trading wasn't a huge surprise, since trading fees have been hammered by banks jostling for market share, and the biggest banks have been pricing out mid-size rivals. But the decision to keep research shocked insiders, a source told Business Insider.
Deutsche Bank isn't known for its strong research, (at least if you ask rival bank employees or consult various annual rankings lists.) And keeping equity capital markets, or ECM, research was especially surprising, insiders and a banker at a rival firm said, since the bank gutted its ECM trading arm.
David Folkerts-Landau, chief economist and global head of research, was one winner who kept his job and his empire at the bank, an insider said.
The research industry has been upended after European MiFID II regulations kicked in last year. MiFID has squeezed smaller banks by forcing them to charge separately for research and trading, with the aim of boosting transparency for clients. That has caused those lenders to focus on their top money makers and dump certain business units, according to Greenwich Associates.
In theory, separating the payments removes the historically relationship-driven decision over which bank to trade with. In practice, fund manager wallets are shrinking to accommodate the extra payments for research, and banks can in turn only afford to keep top-tier analysts. Meanwhile, unhindered by ties to trading fees, more analysts have decided to strike out on their own to start boutiques.
"European midsize/regional brokers will continue to face headwinds in this new regime and face a stark choice," Greenwich's Richard Johnson said in a report in May. "Invest more in their trading infrastructure to improve competitiveness" in their trading units, "or pivot away from trading altogether to focus on their core competency of research."
Deutsche Bank's share price has fallen 6% since the restructuring kicked off on Monday, possibly indicating that investors are wary of the decision to focus on research as a core business.