Deutsche Bank has expressed confidence in its research division under the new MiFID II regime following a pricing war among major banks across Europe.
The investment bank’s annual report outlined its “high-quality, waterfront research coverage” provides opportunity to increase market share as competitors potentially withdraw from the market.
“Regulatory change can also be an opportunity, driving incremental revenue streams and potentially altering the competitive landscape in Deutsche Bank’s favour,” the report said.
“MiFID II, for example, could benefit Deutsche Bank given our high-quality, waterfront research coverage. By comparison, some of our competitors may have to scale back as a result of MiFID II.
“Some competitors may reduce their footprint or even withdraw from the market. This creates an opportunity to gain market share given Deutsche Bank’s commitment to providing our clients with broad-based but deep product and service coverage.”
Deutsche Bank reportedly halved the price of its fixed income and macro research amid an intense battle between major European banks to maintain buy-side relationships despite MiFID II’s unbundling rules.
Asset managers have been forced to pay for research explicitly, rather than through execution missions or a commission sharing agreement (CSA) as part of unbundling requirements.
The move has resulted in greater scrutiny on broker relationships in terms of the provision of research, execution quality and costs, and in some cases a reduction in the number of brokers buy-side firms have used in the past.
Handling separate research payments has proved to be one of the most difficult tasks for asset managers under MiFID II. Initially, buy-side firms were expected to adopt the CSA/RPA model, as absorbing costs at a time of squeezed profits seemed unlikely.
However, major buy-side firms including JP Morgan Asset Management, Fidelity International and Deutsche Asset Management opted to fully absorb the costs of research rather than pass them on to the end investor.
Deutsche Asset Management also created its own internal research division, headed up by the bank’s former head of thematic research Stuart Kirk, to help keep control over its research costs after MiFID II was introduced.
Looking at the wider business, the German bank’s annual report warned that, in general, the implementation of MiFID II and other regulatory changes could have a negative impact on profits.
“The implementation of extended regulatory requirements such as MiFID II and PSD II as well as possible delays in the implementation of our strategic projects could have a negative impact on our revenue and cost base,” the report concluded.