A growing number of institutions perceive the ‘one-bank’ model, of which Credit Suisse has long been a strong advocate, as an effective way to try and capture the assets of the super rich, while a lot of work still needs to be done to rebuild client confidence towards big brands and advisers following the global financial crisis.
At the beginning of 2008, Deutsche Bank formalised the internal joint ventures (JV) between the Private Wealth Management division and the Corporate and Investment Bank, principally to address structural changes that were taking place at the very high end of the wealth segment, explains Salman Mahdi, global head of key clients at Deutsche Bank PWM.
“In many cases families would manage their own wealth almost as a side activity from their core businesses,” says Mr Mahdi. “This works fine in a long period of benign markets, but once we entered the 2008 crisis, people realised this was not a part time activity anymore.”
Many wealthy families hired investment and risk managers to set up their own investment operations or family offices. In order to serve these quasi-institutional clients more effectively, the German bank formed Private Institutional Client (PIC) desks, effectively a JV between PWM and the Institutional Client Group within the markets division. This covers all institutional investors for all the flow businesses in terms of trading, products, risk management and so on. The bank also established the corporate finance JV to encourage wealthy clients to access its M&A advisory and equity capital markets capabilities. Both JVs are operating globally, with desks in New York, London, Frankfurt, and Singapore.
Unlike a traditional institution, where the investment bank sales staff interface with the private bank’s advisers, clients now have direct access to the investment bank trading floors, subject to strict size and sophistication criteria, explains Mr Mahdi.
The new approach – where the relationship manager continues to oversee the entire relationship – is not an easy ride. The main potential issue is that many professionals treat their client relationship as the most precious thing in their work and they may be reluctant to share it with people in other departments.
“The cross-introduction culture is something we have to gradually cultivate – it does not happen automatically or very spontaneously,” he says, explaining that it has been very actively encouraged at the senior management level, both within the corporate and investment bank. “The incentive structure has been totally simplified. Whatever revenues are generated through these relationships are shared, generally equally, between the investment bank and the private bank.”
A SUCCESSFUL START
The integrated model is bearing fruit. During the first half of the year, more than 30 per cent of the global net assets of the private bank came through collaboration with the investment bank. “All the performance metrics that we have for the collaboration this year are running at about double of last year,” reveals Mr Mahdi.
The US and Asia particularly stood out as key areas for revenue generation in the first six months of the year, when markets were strong.
“Asia has been quite a strong IPO market in the first half of the year, and the connectivity between the investment bank and wealth management has helped capture a lot of those liquidity events that have taken place for companies or promoters that have listed their businesses,” says Mr Mahdi. Before joining Deutsche Bank in 2003, he co-founded Abraaj Capital, a private equity firm in the Middle East region, in which Deutsche has today a small shareholding and a board sit.
“If you are able to start a dialogue with an issuer or a family that is going to list its business quite early on, then the chance of us being able to effectively maintain that relationship through the wealth management functions becomes really good.”
In the US, large liquidity flew into the wealth business primarily through the M&A mandates, as families decide to divest businesses.
The IPO and M&A space are the two areas where there are “tremendous opportunities” for liquidity creation and for building strong relationships with the wealth management business, says Mr Mahdi.
If the core German operations are still the biggest in terms of absolute scale, Asia is the fastest growing part of Deutsche Bank. “There are hundreds of businesses in Asia that eventually will go public, which will create more liquidity for their owners,” he predicts.
Mr Mahdi’s objectives are to continue to grow the interactions between sophisticated, quasi-institutional clients with the corporate and investment bank, as well as to offer a broad range of the core PWM services to their top-end clients.
In order to achieve these targets, when he took up his new role in April, Mr Mahdi created a number of global structures, such as the key clients working group. This is a multi-divisional committee where people can have remarkable amount of dialogue between them inter-regionally, he says. It is a global “virtual community”, populated by about 300 key people at the bank, handpicked both from the corporate and investment bank and the private bank.
