Deutsche Bank looks to Europe for distribution
Frank Nash has been hiring top talent recently. With the hires of Lee Zhang to run China (from Goldman), Anthony Steains to run M&A (from ING Barings), he has sent out a signal that Deutsche wants to be part of the Asian bulge bracket. More recently he brought in Daniel Newman (from Salomon) and David Clarke from Deutsche’s telecoms group in London to both run the telecoms group in Asia. He says he will hire two more senior sectoral bankers.
Q: In terms of winning China mandates, are there benefits to being a European house?
A: In our view, in most of the big ticket deals there will be either an explicit or an implicit decision to have both a European and American investment bank as bookrunners.
Q: The China Daily carried a front page headline on Monday saying ‘A bright signal to Airbus – tensions in Sino-US relations to weigh on market balance’. Will the same be true for European investment banks?
A: I’m not sure if it would be explicit. I’m not sure they would say US guys are out, European guys are in. But one could logically expect greater balance. Interestingly, it’s not just China. Korea Telecom recently ran a beauty parade, and they divided the competition into two buckets: the US bookrunner bucket and the European.
Q: Is this because they recognize the value of European distribution?
A: Yes, exactly. I believe if you want to sell stock to a broad base of investors you have to be on the phone to them every day. And we have the biggest European equity platform in the secondary market. We are the number one volume house in eight European exchanges. The exception is France and Italy where we are second by market share. We dominate European equities trading.
Many China deals should have a much bigger European distribution. Currently, in some deals, the US distribution has been bigger, reflecting in part the predominant role of the US bookrunners in deals coming out of China. We bring the ability to create more balanced distribution between the US and Europe.
This is particularly key if you look at things by sector. In telecoms, for example, the market cap of European Telcos is bigger than in the US. Europe is a deeper, broader market for telecoms stocks; and there is more innovation there amongst many of the Telcos. So a European investment bank, that also has a US presence, has enormous familiarity with the sector, as we do. And we’re bringing that expertise to Asia by bringing over David Clarke from London and hiring Daniel Newman. They will co-head our Asian telecommunications group.
Our plan is to focus on telling clients about how we are the best at European distribution, and particularly focus on the sectors where the European market is more suitable for issuers. Telecoms would be one such sector.
Q: How do you persuade the Asian client base that Europe is so important? Everyone here has been taught to think the US is the only market that matters, and that it’s all about ADRs.
A: We’ll put together comparison of the market caps in different sectors and compare the European market with the US. We can do it for telecoms, for energy, and transport infrastructure. The latter’s not even a sector in the US – in fact, there is not one publicly traded piece of transport infrastructure, not one airport, port, or subway system. In Europe you have a lot of that. So if you’re doing Beijing Airport, or MTRC, or Changi Airport, there should be a focus on European distribution.
The other point is that the European equity market has changed a lot thanks to the euro. It has changed the entire buying and trading structure in Europe. It used to be that you had a German fund manager managing Deutschmarks to be invested in Germany, Italian funds managing lira-denominated funds to invest in Italy, etc. That was it. It was difficult and problematic from a currency management point of view to have a pan-European fund management scenario. You have that now. The whole market in Europe has scale and much more sophistication. On top of that, more clients are now buying based on sectors, just like in the US.
Q: A big forthcoming Chinese privatization will be Sinotrans. Does that play more to a European investor base?
A: Absolutely. We think it plays to the Deutsche Post investor base and we took Deutsche Post public. Deutsche Post was a large state-owned, logistics company – again the kind of company that doesn’t exist in the US. You have two in Europe: Deutsche Post and TPG in the Netherlands. Those are the ideal investor bases for Sinotrans.
Q: How much of your investment banking revenues should come out of China?
A: You have to normalize that because of the lumpiness of the business. One year you might have two $30 million bookrunning tickets out of China and the next year none. But I would say, we would expect to get a couple of privatizations out of China in a year and if that were the case, roughly a third of non-Japan, non-Australian revenues should come out of China.