(Bloomberg) -- Britain's decision to leave the European Union will probably curtail finance industry revenue, including in investment banking, as companies worried about the economic aftermath are likely to hold off takeovers and share sales, according to Deutsche Bank AG.
“The external market environment has deteriorated for everyone” since the June 23 referendum, said Alasdair Warren, who leads the company's corporate and investment banking unit in Europe, the Middle East and Africa. “No one in financial services benefits. The consequence is a smaller fee pool.”
Analysts on both sides of the Atlantic have cut earnings estimates for the biggest investment banks on expectations that Brexit-linked economic uncertainty and currency swings will deter securities sales and major deals. That could frustrate efforts by Deutsche Bank and other European lenders to cut costs, raise capital levels and trim their focus on costly debt-trading businesses.
“It's not a rosy picture, but we are well-positioned and our relative share of the available fee pie will probably rise,'' Warren said. “A decision by the U.K. to leave the European Union could take a lot longer than two years to implement. That will mean a lot of uncertainty.”
Warren joined Deutsche Bank earlier this year from Goldman Sachs Group Inc., where he was a partner and global co-head of the financial sponsors group. He reports to Jeff Urwin, the management board member who oversees the corporate and investment bank.
Deutsche Bank's offices outside London, including its headquarters in Frankfurt, mean it isn't subject to the same issues regarding personnel, infrastructure, capital and access to European markets as non-EU competitors, according to Warren.
The bank is trying to rebuild and expand its position in European investment banking, and won't be deterred by the turmoil, he said. “In too few situations are we the first or second call for our clients. Times of crisis are often the best time to build the strongest relationships.”
Some companies may still seek to take advantage of a potential decline in prices, according to Warren. “If you're an investor in China with a decades-long horizon, then this issue seems like a blip and arguably an opportunity,” he said. There will probably also be intra-European transactions, even though some of the larger cross-border activity may decrease, he said.
Turmoil related to a slump in oil prices and slower economic growth had already hit companies and markets before the U.K. referendum. Deutsche Bank was no exception. The company said in May that it put the sale of its Deutsche Postbank AG unit on hold until it could get a better price for the German consumer lender.
“I want Deutsche Bank to be No. 1 across our CIB businesses in Europe, not only measured by wallet share and volumes -- which was a position we held only three years ago -– but also by the quality of our clients, our deals and, most importantly, our reputation,” he said.
Deutsche Bank's image has been tarnished by its involvement in a series of industrywide scandals, notably its record $2.5 billion penalty for manipulating benchmark interest rates. Those lapses have led the bank to tighten controls, sometimes resulting in the loss of business, according to the company.
“My worry is that important controls also have the potential to stifle a client-facing organization, if they are not designed effectively,” Warren said. “We are working hard to get the right balance.''
Low Morale
Complicating Deutsche Bank's overhaul is the matter of morale. The company said last week that a survey of staff found fewer employees feel committed to the lender than a year earlier, with less than half saying they are proud to work at the firm.
“We obviously need to focus on revenues, but we also need to focus on our people and move away from using only compensation as the blunt instrument for keeping the place together,” Warren said. “We've under-invested in our people and we need to change that.”
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net. To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net, Cindy Roberts, Andrew Blackman
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