The world’s leading investment banks have been spending a good deal of time moving furniture around in recent months. In an attempt to adapt to the changing needs of clients, they have been trying to break down some of the traditional barriers between product areas.

In particular, they have sought to get their specialists in issuing, trading and analysing bonds to work more closely with their counterparts issuing, trading and analysing equities. In some cases, this has meant little more than bringing desks together. In others, it has involved a more fundamental reorganisation.

Deutsche Bank has gone further than most. Under Anshu Jain, who became head of all sales and trading 18 months ago, Deutsche has fully merged its fixed income and equity divisions.

According to Mark Ferron, the chief operating officer who pushed through the changes, the idea was partly to serve clients better.

Investors, particularly hedge funds, are increasingly looking across different asset classes and want a more integrated approach from investment banks. But most banks have focused merely on bringing together client-facing teams.

Deutsche has also combined support functions such as securities processing, generating significant cost savings.

“This wasn’t just a cosmetic integration. Combining fixed income and equities allowed us to do a fundamental review of our operating model,” says Mr Ferron.

He originally targeted a headcount reduction of 10 per cent by eliminating duplication. But investments in new product areas and strong business volumes caused staffing levels in global markets to end last year down only 3 per cent.

There have also been big revenue gains, he says, particularly from putting equity products, principally derivatives, through Deutsche’s strong debt distribution team. Equity derivatives volumes quickly doubled, contributing to a €600m ($722m) increase in overall equities revenue in 2005. In addition, the merger has improved risk management.

Reorganisation in itself is not enough to ensure better team working, says Mr Ferron. “You have to win hearts and minds.”

To that end the global markets business has set incentives to ensure that co-operation across the fixed income and equities divisions is explicitly rewarded.

The merger has also enabled Deutsche to make better use of the other big trend in investment banking operations: offshoring.

“We began our process by reviewing what functions could be consolidated or otherwise reconfigured while looking at which of the re-aligned functions could be done more effectively and economically offshore,” Mr Ferron says.

As a result, Deutsche is now looking to increase its markets headcount in Asia, mainly in India, by an estimated 1,500 over the next two years.

Mr Ferron stresses that this is not just about costs but also about the quality of staff available quickly in India and the improvement in service to clients this makes possible. He says, for example, that because Deutsche could tap resources in India it found it easier to respond to the recent regulatory pressure on investment banks to reduce backlogs in processing credit derivatives trades.

Another area where consolidation and offshoring is paying dividends is in research, Mr Ferron says. Pulling equity and debt research together reduced duplication and allowed some functions, such as data analysis, to be centralised and moved offshore. Of the 900 staff in research, Deutsche has 350 offshore and is looking to increase that to 500 by the end of this year.

The low cost of high quality work in India does not just mean savings for Deutsche, says Mr Ferron. “It means we can do things for clients we couldn’t afford to do before.”

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