Deutsche rebuilds its Asian equity business

Honegger (left) and Peter: "we want Deutsche Bank to be on the podium or we do not participate"

"There was no-one around. I thought it must be one of those weird bank holidays," he says. "One of the phones rang: it was someone's girlfriend. I watched the phones for 20 minutes until one of the secretaries showed up. 'They're all at lunch,' she said when I asked. 'What if a client calls?' She put one hand on her hip and looked at me as if I was crazy. 'Clients don't call at lunchtime'".

Swiss-born and US-educated, Peter joined Deutsche Bank in Switzerland in 1999 to run equities operations after 10 years at UBS and its predecessor, SG Warburg. In 2001 he was transferred to Asia to try to fix the equities operation there.

He knew he had to make drastic changes immediately.

"Of the 248 people inherited, only a few remain," he says. "Our business here was put together through acquisitions and a lot of hiring. It was downsized during the Asian crisis. That's the monkey we had to carry on our backs then."

Deutsche Bank, with ambitions in investment banking matched only by the purported size of its chequebook and its aggressive, at times swashbuckling, attitude to finding business, has always been the bank in Asia that others love to hate. Competitors enjoyed the trials and tribulations of Germany's leading bank as it tried to buy its way into investment banking respectability.

"We have big ambitions," says Peter, "and like all businesses we can make mistakes. But the great thing is that we are prepared to take a step back and say, 'I just walked into a wall and broke my nose, how are we going to do this better next time?'"

According to Peter, this is precisely what happened in Asia.

"We knew we broke our nose [here]," he says. "So we went and dealt with things elsewhere and came back. We focused on Europe and the US. Asia was the last of the big regions to get fixed."

From a parlous market-share position, the bank, Peter claims, is now vying for top spot in Asia. "Where we stand now is that we're clearly top three, probably number one at current run rate and number two to date in Asia ex-Japan in terms of market share," he says.

It is a tricky claim to verify since some of the key Asian markets do not publish market share data. In markets where data are available, however – such as Korea, Taiwan and the Philippines – Deutsche Bank has indeed shown rapid improvement. The bank is also busy building a leading position in derivatives.

"The belief we have is that we don't do things by halves," says Riccardo Honegger, managing director, head of global equity derivatives, Asia Pacific and Japan. "We want to be on the podium or we do not participate. After Europe, the next challenge was where do we go next? In mid-2002, Asia was very appealing to us. Everyone was talking it down; it was very fragmented. That suited us."

Like Peter's overhaul of equities, the key for Honegger was to hire well. "Previously in Asia we had a team of opportunity seekers," he says. "That doesn't work if you want to build a franchise around your clients."

For Honegger, clients has a wide definition. "A lot of houses can offer products to hedge funds," he says. "But if I have Mrs Wong, a Korean petrochemicals company or a hedge fund walk into a DB office, I can offer competitive products to all of these clients head to head with the competition."

In fact a key element of Deutsche's derivatives strategy in Asia is based on the hope that Mrs Wong will indeed show up.

According to Ken Sue, Deutsche's managing director, head of structured products, retail is the future for derivatives in Asia. "In Asia you have fractured markets, and with ageing populations, funding your own pension is now a reality. These are systemic changes worldwide and particularly relevant in this region. That's why the future of structured products is retail in Asia."

So important is the ability to secure retail distribution for structured products that Deutsche Bank has entered into a marketing arrangement with arch-rival Citigroup to distribute its products through Citibank's retail network in Asia.

Sue explains: "A good idea is still bad unless you can deliver it. We're not a retail bank outside Germany so our ability to access retail clients through a distribution system in Asia is non-existent."

The ability to tap Asia's burgeoning retail appetite for structured products provides Deutsche Bank with significant additional liquidity, says Honegger, as well as the ability to generate profits from redistribution and repackaging of assumed risk.

"Because of the diversity of our clients and the product base we can remodify the risk we inherit from one product to another," he says. "We don't use the IDB [inter-dealer broker] market much: we do most internally. Not only do I have a residual risk profile, but I don't have to pay the spread [to IDBs], so I can pass on this benefit to clients and be more aggressive on pricing."

These are lofty ambitions for what is still a new business. Yet according to Honegger, the bank has made rapid progress. "It's taken 18 months to build infrastructure and change mindsets. One help was the success of Ed's team: you can feel the buzz every time you walk on the floor. We can sell that vision: it helps to start the process – from a recruitment view point but also from structuring product."

To highlight his point, Honegger refers to the layout of the bank's vast dealing floor in its central Hong Kong offices. "Look at the floor plan nine months ago," he says. "It was all colour-coded – Swiss style, all in a row. Now we have a rainbow: all the colours are mixed in. Institutional derivatives guys, sales traders, guys who are covering institutional or hedge fund clients will sit together. There are no small silos any more. People realize that if you don't cross-sell, if you don't learn about other products from your colleagues, you don't get paid."