Deutsche restructures lending
Deutsche Bank’s global securities services division in London has integrated its securities lending group and its money market investment function in the new global portfolio management group, headed by John Burgess, who previously ran the reserve money market investment management team. He predicts the move will benefit both clients and bank.
“There is a logic to bringing the two together,” he says. Lending is about offering asset liability management services to clients, half of this is the management of the cash generated through the lending activity. “We are taking the lending business, which in many of our competitor institutions is really custody housed, and recognise it in its core as a trading business.”
He adds: “Under this approach revenues are generated for both clients and the bank, through market trading activities, both the repo function on the lending side and the asset management function on the cash reinvestment side.”
This means running it as a combined function, but segregated from custody. “We are bringing a modern portfolio management theory to the business – that is a trading capital markets approach,” says Burgess. “The bank is in a unique position to do this as it as we are the only global custodian, with a global trading businesses. Our competitors are really processing banks, while we have a renowned capital markets business. He adds: “We are looking at this not as a custody but as a trading product.”
Burgess says: “For clients involved in lending programmes there will be enhanced returns, by moving them slightly out the curve in reinvestment opportunities for their cash. Coming from a capital markets background, I believe the alternative distribution channels for getting securities lent out are enormous, other than through the traditional repo markets.”
Clients would have the benefits of more state-of-the-art trading systems being used and better reporting of the business than had been the case historically. “This will mean better risk management about securities lending.” This will encourage more institutions in Europe into lending, he claims. “The lending industry has not yet caught up to the capital markets industry when you look at front-end risk management.” Fennell Betson