Best bank Deutsche Bank
Best debt house
Deutsche Bank
Best equity house
UBS Warburg
Best M&A house
Goldman Sachs
Best at risk management and treasury
Deutsche Bank
Best at cash management and payments
Deutsche Bank
In recent years Deutsche Bank has clearly emerged as the leading bank in Europe, combining strong positions in traditional wholesale banking markets, such as cash management and payments, and treasury, with more sophisticated investment banking services.
Deutsche Bank, throughout its investment banking build-up under the late Edson Mitchell, was able to hire bright young talented executives from the leading global firms and promote them to senior positions they might not have achieved at their old employers. It was a dynamic organization that wanted to build anew along the best models. Mitchell ensured that the institutional distribution network around Europe was built up methodically and that expertise in derivatives was at the heart of all the wholesale business – fixed income, currencies and commodities, equities and credit. In all these businesses Deutsche is the top European bank. Its closest rival in Europe is arguably Citigroup.
Clearly the bank faces challenges both in management succession and in its US strategy. When Rolf Breuer retires, probably next year, it is likely that Josef Ackermann will take over as the head of the bank. Meanwhile, there has been plenty of jostling for position among the former lieutenants of Edson Mitchell since his loss in a plane crash last December. In the US, Deutsche must continue to invest to be a global leader, or it must come to terms with a merger partner or acquirer.
In Europe, Deutsche is now making great strides on the retail side. The whole bank has recently been reorganized into two main divisions: the corporate and investment bank and private clients and asset management. The strategy is sound. The reason for bringing the old commercial bank together with the all-conquering investment bank is that Deutsche’s thousands of middle-size corporate clients in Germany and Europe are now becoming potential consumers of much more sophisticated financial services.
Similarly on the transaction side, Deutsche seeks to do payments and cash management business for a much broader group of middle-size companies than would be targets for its great rival Citigroup, which targets only the largest multinationals in each country.
Now Deutsche is hoping to repeat the growth of its wholesale and investment banking business through the late 1990s in upscale retail banking. It is probably better positioned than any other bank in Europe to achieve European scale, owing to its substantial retail presence in Italy and Spain. It has taken another small step in France through the acquisition of Banque Worms, which brings it 15,000 private-banking clients and assets under management of e7.5 billion, as well as 2,000 corporate clients.
Deutsche Bank was forced to move into direct banking at home because of the dreadful economics of running large retail networks in a country that is so heavily overbanked by state and local owned banks and co-operative institutions. Its Deutsche Bank 24 model is now to be linked to the bank’s operations in Spain, Italy, France, Belgium, Poland and Portugal. The bank’s target is to build up market share in Europe both through organic growth and strategic partnerships.
The bank has already begun working on ways to link its mass-affluent private clients with the capital markets side of the bank. The bank has set up an online investment centre, maxblue, aimed at customers who want to execute securities transactions online and also want some form of qualified investment know-how and analysis tools.
There are two areas in Europe where Deutsche does not yet dominate, though it is striving to do so. These are traditionally the highest margin of the investment banking businesses – equity and mergers&acquisitions. It is strong in both, particularly equities, but here the competition remains intense and of high quality. Goldman Sachs remains a leading player, especially in primary European equities and also in secondary markets, so too Morgan Stanley and CSFB. But the firm that seems to have momentum right now is UBS Warburg. The head of the firm, Marcus Granziol, used to run its equities division. It has a proud record in research, an important differentiator, and has risen to the top of the new-issue league tables as market turbulence has put more emphasis on distribution and deal execution rather than on origination.
It has succeeded with new issues by old economy and new economy companies in tough markets. The $390 million accelerated bookbuild through which Sonera disposed of TietoEnator reopened the European primary market to technology companies. Similarly the initial public offering for easyJet was a key success in a hostile market. In Germany it played a lead role in the $5.6 billion IPO of Deutsche Post. In Portugal it succeeded with the $1.6 billion secondary offering for EDP even at a time when the European primary market was virtually closed. In Scandinavia it is struggling to complete the privatization of Statoil, again amid market turbulence.
UBS Warburg has shows some innovation too. The e975 million exchangeable for Suez into the shares of Fortis was the first equity-linked deal in Europe to be marketed over the internet. It also completed a $1.8 billion MILES convertible bond for Allianz.
The same pre-eminent investment banks fighting out for leadership in the debt and equity markets in Europe are also the leading contenders in mergers and acquisitions. Add Rothschild and Lazard to a strong chasing pack of JPMorgan, Dresdner Kleinwort Wasserstein, Schroder Salomon Smith Barney, Merrill Lynch and CSFB, and the two long-standing leaders, Morgan Stanley and Goldman Sachs, will have to fight hard to maintain their leadership.
Goldman Sachs is still the firm to match in M&A in Europe. It advised on most of the big European transactions, representing VoiceStream Wireless in a $55 billion deal with Deutsche Telekom, Vodafone on the disposal of Orange for e40 billion to France Telecom, Unilever on its unsolicited e25.3 billion all-cash bid for Bestfoods, Dresdner on its $24 billion takeover by Allianz, Dixons on its e2.7 billion sale of Freeserve to Wanadoo and Germany’s E.On on its pending $15.8 billion bid for PowerGen in the UK.
Many of these deals were highly complex to execute, and of profound significance for companies involved and their industry sectors. The Dresdner Allianz deal involved a four-way swap of assets that also drew in Munich Re and HypoVereinsbank. It unwound decades-old corporate cross-shareholdings and may be a catalyst for further corporate restructuring there. The E.On deal brings it into the UK and US power markets at a single step. It requires a series of regulatory approvals and the requirement for no shareholder to own more than 5% of E.On means the state of Bavaria and Allianz will have to sell down their stakes.
