Is Deutsche Bank's Huge Forex Business in Trouble?

Foreign exchange markets have been placid overall, and trading returns are dropping. Is this the new normal, or is a correction imminent?

Apr 16, 2014 at 9:58AM

Stressed
Source: Flickr / Philip C.

Despite foreign exchange markets in developed currencies enjoying a period of relative calm, Deutsche Bank (NYSE:DB) -- the largest player in foreign exchange with a market share of 15.2% -- has been hit with losses as a result of unpredictably volatile emerging market currencies. Should we buy that this may just be a temporary lag in performance, or will it be the new normal?

The Case of Deutsche Bank
In 2013, Deutsche Bank suffered a 16% drop in revenues in its Markets division -- which includes structured products, sales, and trading in a variety of areas, including forex -- due to a difficult trading environment. Assets in the bank's Corporate Banking & Securities Division -- which includes both the Markets and Investment Banking operations -- fell 12% overall. These are obviously aggregate numbers, but the bank's annual report is at pains to point out that declines in forex revenues were due to "margin compression and lower market volatility."

Is This the New Normal?
A few commentators have argued that, rather than monetary policy, it's the trading scandals and regulators that have fundamentally changed the way currency markets operate. Steve Barrow of Standard Bank argues that new limits on communications between traders has cut them off from information about order flows, which in turn reduces trading volume and overall volatility.

In this vein, one could point out that the loss of top traders on foreign exchange desks has also probably had an impact. Though only about two dozen traders have been dismissed or suspended so far, these people represented a major source of specialized knowledge and activity. Deutsche Bank's recent suspension of another top currency salesperson is simply a continuation of a trend -- perhaps without the "stars" of forex, the show is going on, but only glumly.

Or Will There Be a Correction? 
Other (or, most really) observers believe that monetary policy is at the root of the market's strange state. In this case, overall volatility will jump back up as soon as interest rates go up. This would be good news for those that make their money by trading -- at least to the extent that they do, in fact, make money.

From the perspective of someone looking at Deutsche Bank, it's a rather interesting question. Trading has been falling somewhat out of favor recently among the large banks (hardly surprising), but if market conditions grow more appealing, then maybe it will get its groove back and retake the throne atop the commercial banking hierarchy. Or maybe the world really has changed, and forex along with it.

For now, I'm waiting to see how Deutsche Bank and its colleagues respond to this ongoing market environment, and am watching with interest any resource shifts over the coming year. Maybe such moves won't tell us where the market is going, but it'll certainly give an idea of where the banks' strategies are headed.

Big banking's little $20.8 trillion secret
Do you hate your bank? If you're like most Americans, chances are good that you answered yes to that question. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Anna Wroblewska has no position in any stocks mentioned. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers