Bloomberg — Deutsche Bank AG (DB) sees opportunity in Mexico where other investment banks don’t.
The German lender is expanding its operations in Latin America’s second-largest economy, with an eye to tapping into international interest in the country’s manufacturing base, according to Christiana Riley, chief executive officer of Deutsche Bank Americas. That means focusing on providing more foreign-exchange and fixed-income derivatives to corporate clients, she said.
The expansion stands in sharp contrast to banks including UBS Group AG (UBS) and Credit Suisse Group AG (CS) that have sought to dial back operations in recent years in Mexico as they look to cut costs and exit non-core markets. Citigroup Inc. (C) is selling its retail unit, Banamex, while holding onto its corporate and investment banking business.
“The volume of inbound investment is driving the need for incremental foreign-exchange and risk-management solutions,” Riley said in an interview from the bank’s offices in Mexico City. Regarding job cuts facing much of the industry, she said the bank was focused on seeing who they might be able to hire as other firms shed staff in Mexico and the US.
Mexico’s peso is trading near a five-year high and local stocks have had a strong start to the year, supported by signs that more and more companies are moving factories to Mexico to take advantage of its location close to the US in a trend called nearshoring. The nation’s industrial parks are benefiting as international companies relocate supply chains, with demand from businesses in countries including China, Italy, Germany and South Korea.
After scaling down its presence in 2016, the Frankfurt-based bank started rebuilding its trading unit last year, with Marliz Mejia as chief executive officer for Deutsche Securities Mexico. Mejia said local operations, with a staff of 30, were backed by €120 million ($128 million) of capital investment. The office will begin serving local institutional clients such as pension funds this year, she said on Tuesday.
Mejia warned that risks for the peso included the knock-on effects of a US recession or a move by Mexico’s central bank to decouple from the US Federal Reserve’s path of rate hikes. Elections next year will also introduce volatility to the peso, she said.
Still, there are no signs yet of investors hedging for a big move in the peso due to the election, Mejia said. Nor has she seen the risky use of derivatives that led to big problems at Mexican companies like Cemex and Comercial Mexicana in the wake of the 2008 financial crisis.
“The derivatives we’re working with, with our clients, are oriented to hedge those risks,” she said. “They’re not oriented into taking positions as we have seen in the past.”
While Deutsche Bank has breathed life into its trading unit, Credit Suisse shuttered its investment bank and brokerage this year and UBS closed its trading shop in late 2021.
The German lender has so far avoided the large-scale job cuts that have plagued some other investment banks, focusing reductions outside of its trading unit. Riley said the bank did not have to carry out major staff cuts because it had been in the middle of a transformation in recent years and never ended up hiring too many people.
“We’re actually more looking at the opportunistic hiring opportunities that are coming as a consequence of dislocations at other institutions, be they European institutions operating in the US and outside of the US also here in Mexico,” Riley said.
Riley said Deutsche Bank had wound down in Mexico the last decade as the company cut costs. Now, after posting its highest profit in 15 years, the bank has “a stronger, more robust capital base to consider this deployment,” she said.
With the buzz around nearshoring, Riley said it was a good time to be coming back amid the opportunity to serve both German companies in Mexico — such as the automakers and the conglomerate Siemens — as well as its US clients.
“This is about doing what we should have been doing all along,” she said.
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