There is more to the strong trading revenues Deutsche Bank AG has seen in recent quarters than increased market volatility due to COVID-19, as the group's investment banking arm has been winning back clients since its restructuring in July 2019, according to CEO Christian Sewing.
The performance of the investment bank also reflects the refocus of this division around businesses where it has market-leading positions, Sewing told analysts at the presentation of third-quarter earnings on Oct. 28. He said the group outperformed peers in several key areas within fixed income, and increased market share, in the three months to Sept. 30.
Total third-quarter revenues in the investment banking unit rose by 43% year over year to €2.37 billion. Fixed-income and currency sales and trading revenues accounted for the bulk of that amount, rising 47% year over year to €1.80 billion. Origination and advisory revenues were up 15% to €567 million.
The growth in fixed-income revenues has been driven by the supportive market environment and also by clients reengaging with Deutsche Bank in recent months, Sewing said. Deutsche made targeted investments in key business areas as part of its restructuring, he said.
In its rates business, Deutsche Bank has "clearly benefited from new hires and very strong risk discipline" and has seen clients returning for the last three or four quarters, Sewing said. The emerging markets business has also grown on client reengagement, which is evident from the underlying trade flow and transaction volumes, he said.
The CEO said the revenue growth is likely to be sustained. The latest figures are "the best evidence," because even as the market started to normalize, Deutsche Bank outperformed, Sewing said.
He said that, especially in times of crisis, clients tend to work with the top five companies in the market, and that is where Deutsche has focused most of its investment banking operations.
"Now about 80% of the revenues we generate are in businesses where we definitely have a leading market position," Sewing said.
On course to beat 2018 trading revenues
Deutsche Bank will be able to book higher trading revenues than it did a few years ago, even if the global fixed-income trading revenue pool shrinks over the next few years, according to the CEO. It is back to 2018 market share levels and, based on the momentum from clients returning, will beat the trading revenues booked in that year, Sewing said.
"I can comfortably say that ... future revenues in the fixed-income business will be higher than in 2018 because we can see the day-to-day underlying trading volume and the transaction flow," he said.
"If you just take the list of clients coming back to Deutsche and compare that to how many clients paused trading with us after 2016, then this is a massive underlying transaction volume, which we actually have."
In 2016, when Deutsche Bank was in the early stages of a multiyear restructuring led by then-CEO John Cryan, market fears that the group might face a $14 billion fine from the U.S. Justice Department and be unable to pay coupons on its contingent convertible bonds pushed investors away. The group has been clawing back market share lost in that period for the past few years.
The actual fine the Justice Department imposed on Deutsche Bank for the misselling of residential mortgage-backed securities during the 2008 financial crisis was $7.2 billion.