Why Deutsche Bank clings on to billionaires?

Deutsche Bank Clings on to Billionaires to Maintain a Rare Lead. Deutsche Bank AG, the German lender losing market share across the world to its biggest rivals, has held on to a key group of clients: junk-bond billionaires.

  • Icahn, Hernandez, Al Amoudi tap Deutsche Bank for financing
  • Deals help bank top western European high-yield league table

The Frankfurt-based lender has sold 9.3 billion euros ($9.9 billion) of high-risk, high-yield bonds in western Europe since the start of 2016 for clients including billionaires Carl Icahn, Manuel Lao Hernandez, Mohammed Al Amoudi, Paul Coulson and Patrick Drahi, data compiled by Bloomberg show. The deals helped Deutsche Bank top the table for such bond sales on the continent even as it lost share of other markets it used to dominate and its slice of trading revenue fell to the lowest since the credit crisis.


Deutsche Bank has dumped some less-profitable customers, while other clients stepped back from dealing with it amid questions about its capital levels and legal bills. Even as European high-yield issuance shrank last year, the deals show it’s an area where the firm is still willing to take risk as Chief Executive Officer John Cryan overhauls the bank.

“Deutsche Bank has had to make some decisions and they’ve chosen high-yield as a go-to product,” said Tim Hall, global head of debt capital markets at Credit Agricole SA until last year. “What you love about those clients is they’re acquisitive, they’re on the move and they have a high velocity of transactions. Banks love that.”

Icahn Deal

Icahn, 81, chose Deutsche Bank as the sole manager for Federal-Mogul Holdings LLC’s sales of 715 million euros of bonds late last month, the data show. The Southfield, Michigan-based maker of automotive parts, which generates almost half its sales in Europe, is part of the U.S. mogul’s $20 billion sprawling business empire.The deals for Icahn, who’s also serving as an adviser to U.S. President Donald Trump, helped Deutsche Bank leapfrog Goldman Sachs Group Inc. to top the western Europe high-yield league table in the first quarter. The firm has managed 24 high yield bond deals in the region this year and sold about 2.3 billion euros of the debts for clients, compared with 1.7 billion euros for its New York-based rival.

Junk bonds are debts that ratings firms judge more likely to default. In the U.S., banks charge high-yield issuers about 1.2 percent of the amount borrowed to compensate them for the risk that the debt’s value could drop before the firm is able to sell it on to investors, data compiled by Bloomberg show. That compared with about 0.5 percent for investment-grade corporate debt. Alison Moody, a spokeswoman for Deutsche Bank in London, declined to comment on the business. Federal-Mogul’s Jim Zabriskie declined to comment on its hiring of the bank.

Deutsche Bank’s position at the helm of the European junk-bond table contrasts with its rankings in other markets. In 2013, the lender was the biggest arranger of overall European bond sales, the second-biggest in emerging markets and the fourth-biggest in U.S. high-yield. By last year, the firm had tumbled out of the top five in each of these asset classes. The lender’s overall fees from debt underwriting fell 6 percent to $1.5 billion in 2016, while many rivals posted increases, according to Bloomberg Intelligence data. Declining revenue at the bank prompted analysts and investors to fret over how Cryan will boost profitability and, last month, he unveiled his second overhaul plan since taking charge in mid-2015. Along with raising about 8 billion euros in fresh capital from investors in a sale that wraps up Thursday, Deutsche Bank will also focus more on doing deals for corporate clients instead of hedge funds and asset managers.

‘Money Spinner’

Deutsche Bank’s London-based high-yield unit, overseen by Henrik Johnsson, cultivates the continent’s moguls because they tend to be repeat bond issuers and often look to their lender for merger advice and help arranging other forms of finance, including loans and initial public offerings, industry veterans said. “Deutsche Bank needs to keep this clock wound and well-oiled,” said James Ward, former head of European high-yield at Axa Investment Managers in Paris. “It’s a long-term money spinner.”

Still, arranging junk bond sales isn’t the cash cow it used to be. Sales of the debts in Europe are forecast to fall almost 10 percent this year to 50 billion euros after already declining about 20 percent last year, according to Societe Generale SA. Investors have piled into riskier debt in Europe in pursuit of higher returns as the European Central Bank buys up billions of euros of higher-rated bonds to boost the economy. As the ECB starts to reduce the purchases this year, there’s a higher chance investors will sell high-yield holdings and companies will delay plans to come to market and sell more, said David Watts, a credit analyst at CreditSights Inc. in London.

“Deutsche Bank is making good revenues off a market that at the moment is O.K., but the peak of issuance was years ago,” said Watts. “If the high-yield market turns, that will affect banks who are generating fees.”

Biggest Deals

The lender completed 14 more deals than any other bank in 2016, the data show. Deutsche Bank’s biggest single deals including selling 570 million euros of the debts for Corral Petroleum Holdings AB, a Nordic oil refiner owned by Saudi billionaire Al Amoudi, and 450 million euros for Cirsa Gaming Corp SA, a slot machine and bingo hall business controlled by Manuel Lao Hernandez. Hernandez started off running slot machines in the bars and cafes of Catalonia in the late 1970s. Over the four decades that followed, he built a gambling realm stretching from bingo halls in Mexico to a casino on Morocco’s Atlantic coast and amassed a fortune of about $2.4 billion, according to Forbes. Deutsche Bank has enabled much of Hernandez’s empire-building. The lender provided a line of credit and arranged sales of billions of euros of high-yield debt since 2004 as Cirsa pushed into other continents, data compiled by Bloomberg show.

“Some banks were reticent about working with this type of product from a gaming company,” said Gerard Buera, treasury manager at Cirsa. “But Deutsche Bank was open to it.”