Deutsche Bank Sales and Trading: Overview and Interview Questions
Last Updated:Prior to the Great Financial Crisis, Deutsche Bank had one of the leading sales and trading platforms globally. Not only were they the largest platform in Europe, they were aggressively expanding in the United States; especially in more novel products such as mortgage-backed securities and various forms of credit derivatives.
When the Great Financial Crisis hit, all major investment banks entered into seemingly endless rounds of litigation and were handed down billions in fines from regulators. However, not all banks were treated equally and Deutsche Bank generally was hit hardest both in Europe and the United States (relative to their market share).
Further, ever since the GFC, DB has seemed to be caught up in some form of litigation. From many violations of KYC compliance, to FX price fixing.
One way you can think about sales and trading, as a business, is that you are constantly taking small risks, earning small returns, and hoping that no cataclysmic event comes that wipes out all the profits you've steadily accumulated. This cataclysmic event could be in the form of a large trade not going your way, a client blowing up costing you millions or billions, or a regulator coming and handing you a fine worth hundreds of millions or billions of dollars.
Most investment banks - like Goldman Sachs, JPM, MS, etc. - have obviously become very good at making incredibly large profits by taking many small risks and mitigating downside threats (from bad trades or litigation).
But Deutsche Bank has had a rough time post-GFC. While all other banks were able to continue and grow thier S&T platforms, Deutsche Bank just never seemed to really be able to get back to where they were before.
After a decade of trying and stumbling, DB entered into a major restructuring in 2019. This restructuring led to Deutsche Bank exiting its entire equity business globally (e.g., cash equities and equity derivative trading), and instead having its entire S&T franchise revolve around fixed income, credit, and currencies (DB largely exited from commodities many years before 2019).
Since 2019, DB has stabilized its smaller platform. Given that it is still the most preeminent German bank, it has a natural place in the FX and EM credit ecosystem and DB has always been strong in other areas of fixed income.
Currently revenues across DB S&T are up substantially YoY showing that the restructuring to a leaner S&T platform has worked and will continue to help support DB's overall revenues during periods of slow advisory (investment banking) activity as was seen in 2020 during the height of the pandemic.
Joining Deutsche Bank Sales and Trading
I've never had anyone e-mail me asking whether or not it's a good idea to join Bank of America, Barclays, or RBC. However, I've had at least half a dozen people e-mail me asking about Deutsche.
Given what has transpired over the past decade, it's understandable that college students and new grads would have concerns around joining DB. Are they joining a sinking ship? Will their job be secure? Will they learn as much as their peers at other investment banks will?
My answer is that despite the volatility (to put it delicately) that Deutsche Bank has gone through over the past decade, it's still a large prominent investment bank. What you will be doing as a junior will be roughly the same as what you'd be doing at any other sales and trading platform; it's not like you'll have a fundamentally different kind of job.
Here are a few other things I'd note:
First, analysts are always cheap to have around. You will almost certainly not be laid off once you're on the job unless a major restructuring occurs in which sales and trading at DB is entirely wound down (which is incredibly unlikely).
Second, the skills and exposure you'll get at DB will make you valuable to other firms. So, if after a few years you want to move to a bank that relies more on its S&T platform - like GS or MS - then you can absolutely do so.
Third, given how lean DB currently is, there is likely opportunity to move up quickly. This stands in contrast to other banks that have more top heavy organizations. So, it's not inconceivable that you will have a quicker ride to the VP level or beyond at Deutsche Bank than you would at other major investment banks.
Of course, all else being equal, you should take an offer from Goldman or JPM over Deutsche Bank. However, if you've only secured an offer from DB you shouldn't worry at all -- while a lot of change has occurred, it's still a great place to start your career and it doesn't have to be where you end your career.
Deutsche Bank Sales and Trading Interview Questions
Since DB is entirely out of the equity markets, it's not overly important for you to know much about them (although equity markets, of course, inform how other markets trade and vice versa).
The Fed recently said they were going to begin tapering. What does that practically mean?
How is an FX quote structured?
What clients are most interested in investment grade debt? What about distressed debt?
The Fed recently has begun to taper. What does that practically mean?
This is indicative of the kind of general market-based question you'll likely be asked in an interview. Because it's such a broad question it allows interviewees to differentiate themselves by giving in-depth answers (unlike with questions that have more objective "yes or no" style answers).
As the pandemic began to rip through the economy, the Federal Reserve instituted a number of unprecedented programs (like their credit facilities) and some programs that were tried and true.
One of these tried and true programs that was introduced was a large level of quantitative easing. All this practically means is that the Federal Reserve enlarged its balance sheet by purchasing Treasuries and mortgage-backed securities each month (to provide liquidity and reduce down long-end rates).
As of Q3 2021, the Fed was purchasing approximately $80b of Treasuries and $40b of MBS. However, beginning in November of 2021 it began to taper. All that tapering refers to is slowing (tapering) the rate of these monthly purchases.
Currently the Fed is decreasing its monthly purchases of Treasuries and MBS by $15b a month, which would mean that by June 2022 it would no longer be purchasing any of Treasuries or MBS. However, with inflation rising and appearing more persistent than perviously though, it may begin to accelerate this taper by reducing its purchases more heavily.
Note: After the Fed has fully wound down its monthly purchases to zero, it plans to begin raising the overnight rate (by twenty-five basis point increments; currently the market is pricing in three rises of twenty-five basis points in 2022).
When a central bank raises rates, generally speaking what does that do to the prices of corporate bonds outstanding?
Remember that when you're thinking about the yield of a corporate bond, you should think about it as being a combination of the risk-free rate (the Treasury rate of a corresponding maturity) plus a credit spread (that takes into account the credit risk of the borrower).
So, all else being equal, when a central bank raises rates, Treasuries across the yield curve will generally all go up. This means that even if the credit risk of the company doesn't change at all, the yield associated with the corporate bond will go up.
This question is asking us about the price, however, not the yield. So, we need to keep in mind that as yields go up, prices go down.
So, all else being equal we'd expect that as a central bank raises rates the yields on corporate bonds would go up, and thus their prices would decline. The reason why through 2020-21 so many corporate bonds were trading with prices well above par was is because they were issued with higher coupons (but as Treasuries plummeted, yields fell on these corporate bonds, so the prices of went up well over par).
How is an FX quote structured?
When quoting FX rates you'll have a base - so, for example, €1 - which will then be equated to another currency like USD. Therefore, you can have something like €1 = 1.13 60-65.
The 1.13 is what is referred to as the "big figure", while the "60-65" are the pips. The pips denote the bid ask spread.
So, practically what this means is that a dealer would be willing to buy the base currency (€1) at $1.1360 USD or sell the base currency (€1) at $1.1365 USD.
What clients are most interested in investment grade debt? What about distressed debt?
It's always worth having a reasonable idea of which clients deal the most with certain types of desks.
The biggest clients on the investment grade desk at any investment bank will be large asset managers, pension funds, sovereign wealth funds, etc. However, for distressed debt these more institutional clients are much less apt to have any interest (in fact, they often have mandates precluding them from buying such risky securities).
Instead, clients that deal with the distressed debt desk tend to be smaller (in terms of AUM) hedge funds and some asset managers that dedicate a small amount of their AUM toward riskier credit scenarios.
Conclusion
The Deutsche Bank internship program is relatively unique in that you not only rotate through different desks, but you can get exposure across sales, trading, and structuring.
The fact that you can pick and choose where you want to be so readily is actually a very nice feature of their program. Although, of course, it's not a given you'll be able to rotate exactly where you want if you're looking to get onto a popular desk.
If you're gearing up for interviews, be sure to check out my longer overview of sales and trading or the long list of sales and trading interview questions that I put out.
Also, if you're at all concerned about Deutsche Bank's commitment to S&T I really wouldn't be. My view is that after the 2019 restructuring, DB is really looking to expand off of its much slimmer base (as opposed to pruning it even more). Certainly with the results they had in 2020-21, they'd almost certainly be looking to grow headcount not contract it further.