Dresdner Kleinwort Wasserstein CEO Andrew Pisker explains to Geraldine Lambe how his strategy for remodelling the investment bank has paid off and why there will always be room in the global market for good mid-sized European businesses.

On a gloriously sunny day in London, Andrew Pisker, chief executive of Dresdner Kleinwort Wasserstein (DrKW) since October 2002, is relaxed and cheerful. As head of Dresdner Bank’s investment banking business – owned by sometimes reluctant parent, insurance firm Allianz – Mr Pisker is unfazed by awkward questions, whether asked by owners, clients, analysts or journalists. When he was appointed CEO, he had a very clear idea of what needed doing – and did it. He is positive that solid foundations have been laid to make DrKW’s hard work pay off. “We have good people, good products, adequate capital and a focused strategy. We know where we are going,” he says.

In brief, since Mr Pisker joined the firm (as head of global markets), the bank has been remodelled into a highly integrated investment banking offering and restocked with some serious talent. Debt capital markets (DCM) was combined with lending, then DCM was integrated with equity capital markets (ECM) to create a single capital markets origination business. A large chunk of debt was siphoned off into its Institutional Restructuring Unit (where it was restructured, securitised, wrapped up and sometimes sold on) and the client base was slimmed down so that the bank could focus on core clients and allocate its risk capital more profitably.

In the first nine months of last year the bank turned in a profit of €217m (down from €335 in 2003) – a modest amount compared with the profits of the bulge bracket firms. But it must not be forgotten that, between 2002 and 2003, Mr Pisker oversaw a turnaround of about €1bn in the bank’s fortunes. More importantly, he says, if you plot earnings against capital employed, 2004 figures tell a different story.

“In 2003, which was pretty much a one-way bet on fixed income markets, we ran fairly big value-at-risk (VaR) numbers – up to two-thirds of the VaR limit agreed with Allianz. In 2004, we brought VaR down to one-third or less of our limit because we didn’t see the direction of the market so clearly. So per unit of risk, DrKW made more money in 2004 than in 2003.”

Mr Pisker admits that the DrKW’s cost to income ratio – a high 86% – “concerns him”. He denies that it is just the cost of attracting high quality staff and maintains that it is partly a function of being mindful to keep risk down. That said, he believes it is possible to bring it down to something in the 70s, in the next couple of years. “We are now in a better position to run better quality risk. Ideally, I would like to see us reinflating the risk envelope to 2003 levels,” he says.

Clearly, Allianz plays a role in determining the parameters of DrKW’s risk-taking; Mr Pisker’s task is clear: turn the firm around and make it sustainably profitable, but don’t bet the bank in doing so. Allianz is concerned to minimise earnings volatility: the big swings in earnings experienced by the trading operations of Goldman Sachs and other Wall Street firms would not be welcomed by the insurer.

“At this stage in our evolution, we have had to look elsewhere to generate revenues – we cannot make money on big, single market proprietary bets. We have to make more from better ideas, products and good people,” he says.

To leverage the infrastructure that has been put in place, last September, Steve Bellotti (formerly of Merrill Lynch) was lured out of early ‘retirement’ in Aspen to join as global head of capital markets, which Mr Pisker believes he can take to the “next level”. In December, Mr Bellotti recruited an ex-colleague from Merrill, Richard Houston, to the newly created role of head of capital markets risk trading. While it is partly a proprietary risk management role, one of Mr Houston’s key functions will be to optimise the bank’s trading so that DrKW can better capitalise on the opportunities that other banks have profited from – within the parameters agreed with Allianz, says Mr Pisker.

“For the first time we will combine all the risk taken across the capital markets under one trading view so that we can be more risk efficient and more profitable,” he says. “If our guys are taking five different positions across different products that all add up to one big, correlated trade, that may not be what we want.”

Bigger role for Germany

Germany will also play a bigger role in DrKW’s fortunes. Mr Pisker is a regular visitor – he made 40 trips last year – and, as a member of Dresdner’s management board, he is one of a handful of foreign nationals operating at main board level in German finance. He has raised the bar in terms of what revenues he expects the bank to make there and the role it should play in the restructuring of German companies. DrKW now has full responsibility for German multinationals and a “very co-operative joint venture” with the corporate bank – the aim of which is to tap the potential of a much broader group of big German companies who increasingly need investment banking products and services. Mr Pisker says: “Germany is already a major part of our business and will become even more important.”

For investment banking and capital markets – now that Commerzbank and WestLB have, to some extent, fallen by the wayside – Mr Pisker feels that DrKW is the only real alternative to Deutsche Bank, which has, anyway, irked many of its German clients by a somewhat laissez faire attitude to its domestic market.

“Germany is still our domestic market and it can be a pretty lucrative one,” he says. “We have deliberately maintained a major presence in Frankfurt as well as London because we have to play to the German audience as much as anywhere else in Europe. And we are making headway – that is clear from the business we are already seeing and the level of access we now have to German companies.”

Trust remains fundamental to German business relationships and Mr Pisker – who happily admits he plays the German bank card in Germany just as he trades on DrKW’s UK credentials to win UK business – believes that Dresdner as a brand has a currency that the investment bank can leverage now that it is in a better state of health. “Dresdner Bank is still seen as an old and trusted name in Germany. We are still part of the family; an insider. If you add that franchise value to the products and services we can offer, it is quite a potent mix.”

As part of its courting dance with German companies, last month DrKW hosted a conference in New York, where it presented 44 German firms to more than 400 US institutional investors. “Many large German corporates already have a relationship with Dresdner Bank, but as their needs get more sophisticated they are increasingly looking to our product expertise and our ability to help them diversify their funding base. And US investors are very interested in Germany – they believe they can make money there,” says Mr Pisker.

Strength in innovation

DrKW has other strengths to shout about. It has already proved that it can be innovative in terms of product and service offerings. For example, an idea from global head of debt syndicate and credit trading, Sean Park, and global head of structured debt and private placements, Henry Nevstad, saw the birth of credit spread warrants last year, which enable corporates to lock into attractive spread levels. And last month, DrKW launched a direct market access service that will enable retail brokers to put their orders directly into the London Stock Exchange’s Sets electronic order book.

But some still question whether DrKW has enough weapons in its armoury to survive in what many argue is a now a global bank’s world. Is there a future for mid-sized investment banks?

Mr Pisker believes there is. “If size was everything, BMW and Porsche wouldn’t be doing as well as they are. It’s also about focus. The European market is big enough, broad enough and interesting enough for there to be room alongside the global firms for strong European firms with an international reach. We have an 800-strong US operation that – with a more focused strategy which leverages our strengths rather than challenges the bulge bracket behemoths – is successful and makes us money. And we have access to South East Asian and Japanese markets through two hubs, with about 500 people, in Tokyo and Singapore.”

Not least, he says, DrKW will go from strength to strength because clients want it to. “The last thing clients want is solely a US oligopoly. The US market is very efficient but there are very lucrative fees built into the US structure which, net-net, account for a large part of US firms’ profits. If they ruled Europe, that fee structure would be exported too. We are a natural hedge against a US oligopoly forming – and that’s what our clients are telling us.”

Career history 2003: appointed to the board of managing directors of Dresdner Bank AG with responsibility for Investment Banking 2002: appointed CEO, DrKW

2002: named global head of capital markets

2000: joined DrKW as head of global markets; in December, appointed head of global debt

1999: named deputy head of fixed income

1998: promoted to head of global bonds

1997: joined Paribas as co-head of global bonds

1995: named global head of syndicate and a member of Lehman Brothers’ European Executive Committee

1993: joined the worldwide fixed income management team

1991: promoted to managing director. At 30, Lehman’s youngest MD at that time

1990: named head of debt capital markets and syndicate

1987: promoted to European syndicate manager

1984: appointed head of floating rate note trading

1982: joined Lehman Brothers as graduate trainee

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