Can Europe produce a top-tier global investment bank? The British have proved they can't. BZW and NatWest Markets were disasters and though they have spawned successful offshoots, Barclays Capital and Greenwich NatWest are to British investment banking what Greg Rusedski is to British tennis - technically British, actually North American. Bob Diamond and Tom Kalaris are ex-CSFB and JP Morgan respectively, and NatWest bought Chip Kruger and Gary Holloway's Greenwich Capital whole.
Now it seems that Deutsche Bank is finding it tough too. Deutsche started right. It saw what others had failed to see. If Merrill Lynch is worth $30 billion it cannot be possible to build a credible investment-banking presence for a few hundred million dollars (take note Rabobank). It saw that its existing commercial bankers weren't up to the job. And it saw that its regional heads would have to yield to global product chiefs. So Deutsche spent a lot of money on experienced investment bankers and gave them the power to sell what they liked where they liked. And it worked. The bank gained respect in key markets.
Then came the Asian crisis. The bank blanched at the volatility it suddenly realized underlay DMG's profits, and tradition took over: a strong regional head was more important than anything else. John Ross, head of Asia and a tough operator, is now battling for more power and his own P&L. The region versus product battle is on again and unchecked it will tear the investment-banking franchise apart.
At the same time what started as Bill Harrison's investment-banking division is unravelling ever more rapidly. The departures of Carter McClelland, Simon Ellis, the respected French team, Maurice Thompson, Rory Macnamara, Dietrich Becker and now the high-tech triumvirate of Frank Quattrone, George Boutros and Bill Brady will deprive Deutsche of much of the glue that was to hold investment banking together.
Deutsche is now clearly third to the new UBS and CSFB and does not compare well with a rejuvenated Dresdner Kleinwort Benson.
Deutsche should have stuck to its initial blueprint; it was half way to building a credible global investment bank. By putting the brakes on DMG, it is losing elite staff and the losses are damaging the franchise. The return to commercial bank management structures and the reliance on commercial bankers to cross-sell is a mistake. You can't do investment banking without investment bankers.