Deutsche Bank
Core Members
21 January 2014
The core members of the Deutsche Bank agency securities lending (ASL) group have more than two decades of experience throughout the industry, overseeing all aspects of securities lending services. Twenty years on, Tim Smollen, Anthony Toscano, Frank Gambino, Jay Schreyer, Fredrik Carstens as well as Mark Tisi, and Peter Carter, remain together as the Deutsche Bank ASL management team that continues push their business into new markets, with new ideas, to court new clients.
Image: Shutterstock
How have you been able to keep the team together in a business where staff are continuously headhunted?
Smollen: Our team has been together for more than two decades, and we have been able to constantly evolve and grow the business, keep everyone challenged, and continue to keep our business model fresh. There’s a tremendous amount of camaraderie within the team in each of our locations. We are able to keep all functional components of the team physically together and operating as one business and with one agenda
In each of our locations, we have trading, client service, marketing, middle office, and IT. Everything is based on what the client wants and is customised to their needs. We believe that there’s a lot to be said for keeping the team together as one cohesive unit, which also keeps us extremely focused.
We encourage mobility within the team and between our various locations. There are numerous examples of client service staff members who have come from our middle office, and traders who have come from our client service business.
We offer everybody an opportunity to take on different responsibilities within the business, which provides us with a well-rounded team who have seen all aspects of the business.
Toscano: For a long time, we’ve been running a large global business but with a boutique feel to it, challenging ourselves to grow beyond pure profit and find success in new markets, and win clients that diversify our client base.
The team has grown together, and so we have a very deep respect for one another.
Gambino: We’ve created a business at Deutsche Bank that is very entrepreneurial, and that has kept us very nimble. We have all had experience working on the custodial lending side, which sometimes operates more like big machines—with our team and in our environment you are able to see your visions come to fruition quickly.
Schreyer: Through the years, because of the way our business is set up, we are constantly evolving, which gives people within our team room to grow without having to move on. We are constantly figuring out ways to expand the business, or to reach new clients. This gives us the ability to have members of our team stay in the same position, while continuing to grow individually.
Carstens: We’ve been able to keep the team quite lean while still being extremely efficient. Traditionally, big providers employ far more individuals and the larger they get in size, the more complicated and bureaucratic they become. A smaller team of course means that some of us wear more than one hat, but we believe that speaks to the level of experience each of us have and the service we are able to provide. We’ve worked as this same team over a long time—but it always feels new.
Smollen: One of the most important aspects of building and maintaining a great team is encouraging the right work-life balance. This team has been together for a long time and many of us have families and kids, and it is important to understand that people’s families always come first. We encourage everyone not to lose sight of that and that is likely one of the reasons why many people stay with the team.
What is your perspective on Deutsche Bank’s position and brand in the market?
Smollen: Historically, the perception in the market may have been that we were primarily a fixed income securities lending business. That probably speaks more to our early days, when many of our first clients were central banks and sovereigns, which happened to own a lot of fixed income.
Ironically, our growth has really been more on the equity side, particularly within the last five to seven years. While fixed income is our bread and butter, we have certainly put a tremendous focus on equity lending. When we look at portfolios, we are very interested in those that are diversified across all asset classes. You’ll find that there are some lending boutiques out there that will only go after equities, but we do not.
Toscano: Collectively, we have had many experiences operating in different types of markets—whether that is working during rising or falling interest rate environments, FX crises, counterpart defaults, etc. We have taken those experiences, built tools to manage risk on our desk, and come up with ways to take advantage of opportunities to generate spread for clients in a manner that fits their risk profile.
Schreyer: Here are a few examples of how we have been at the forefront of a lot of these events in the industry: we started doing third party lending in 1992 on a very manual basis for our first clients in the US In 1993; we started lending in Europe with clients using a European provider as custodian; and started taking non-dollar cash collateral in London in 1992.
A lot of people claim to have invented third party lending, but for us, it’s been a basis for a lot of what we have done over the years. We have been less concerned with size and more focused on partnerships with our clients, and being able to grow those partnerships.
How has the team handled the trend of de-risking?
Toscano: After the credit crisis and a long stretch of a low interest rate environment, we quickly recognised that a good place to extract value was through the securities that we had out on loan. What we have done is brought the term ‘intrinsic value lending’ to life—creating a process to extract and maintain value over the course of a loan’s life, in order to compensate our clients in the best way possible.
That being said, we have clients that are not fearful of taking on some risk with their cash collateral, and that may speak a lot to our expertise as a third party lending agent. Clients that have chosen us have a certain level of sophistication as to how they’re generating their income. Our clients have set numerous restrictions and limits for their programmes with us, but we’ve been able to adhere to those guidelines and at the same time develop lending strategies that generate positive returns.
Also, the client decision making in the last five years or so has been coming from a chief investment officer’s office, rather than a COO’s office. That may speak to the evolution out of an operational custody perspective, to the appreciation that this is a beneficial investment management product.
Schreyer: Because of the way we operate our business we have not needed to significantly de-risk our programme. Deutsche Bank’s business has been set up as an asset liability management business, where we match off our liabilities with our assets and look to realise the lending value in the securities, rather than taking significant outright investment risk. We have seen a substantial increase in interest in this approach and many of our new wins are clients looking to de-risk their legacy programmes.
The other area on which we have focused in the last couple of years is continuing to build out our suite of risk management reports for our clients. We also have a dedicated team of risk specialists focused on securities lending, who not only measure and monitor the risk in the business, but also participate in client reviews.
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