To find the biggest moneymaker at the rarely-money-making Deutsche Bank AG, you need to travel 6,370 miles from Frankfurt to the 18th floor of a glass office tower overlooking the green waters of Marina Bay in Singapore.
There, Chetankumar Shah, a low-profile and publicity-shy banker in his early 50s, runs a team that oversees complex financing for clients ranging from Asian tycoons to an Indonesian conglomerate, while trading the distressed debt of companies including an Israeli shipping firm.
Shah may not be a household name on Wall Street, but his global financing and credit trading group pulls in an estimated 3 billion euros ($3.5 billion) annually, accounting for about a third of revenue for the entire investment-banking division, people familiar with the matter said. After working alongside former fixed-income veterans like Sajid Javid—now a British lawmaker—and SoftBank Group Corp.’s Rajeev Misra, Shah now heads a unit that’s the top money generator for the investment bank most quarters, the people said, declining to be identified as the details aren’t public.
His importance underscores how even after years of trying to retreat from volatile businesses, Deutsche Bank hasn’t been able to pull away from activities that pose risks if markets turn. Chief Executive Officer Christian Sewing is targeting revenue growth after a relentless cost-cutting drive, returning to credit-default swaps and possibly base metals trading. The firm’s primary regulator has already expressed concern about risks it’s taking in leveraged loans—a familiar refrain for a bank whose recent stumbles led to the highest legal bills of any European lender, resulting in losses for five of the last six years.
Under Shah’s leadership, Deutsche Bank has cemented its role as one of the world’s biggest credit traders. His global empire includes the distressed-debt trading business that has long been a strength of Germany’s biggest bank, along with a lending unit that’s served as a growth area after many Wall Street rivals pulled back in the wake of the financial crisis.
“He was one of the pioneers that helped us create the markets business virtually from scratch,” said Anshu Jain, the former Deutsche Bank co-CEO who worked with Shah for more than a decade and is now president of Cantor Fitzgerald LP. “Chetan has a multi-decade track record of very good risk management.’’
Amid all the recent turmoil at the bank that led to a string of executive departures, including Jain and former CEOs John Cryan and Juergen Fitschen, Shah has been a constant. He’s outlasted six CEOs during his 15-plus years on the credit team, working as head or co-head for the last six years.
Despite the billions his team brings in, Shah avoids the limelight from his nondescript corner office in the heart of Singapore’s financial district. He declined to comment or be photographed for this story. A vegetarian teetotaler who loves cricket, Shah doesn’t even have a LinkedIn profile. He remains an “enigma” even to one banker who has worked alongside him for a decade.
Born in India, Shah studied at the prestigious Indian Institute of Management Ahmedabad, one of just three students graduating with a medal for academic performance. He joined Deutsche Bank in 1994, initially trading Indian rates and treasury bonds in Mumbai, before eventually becoming head of global credit trading.
Shah moved to Singapore in 2005, joining many financiers attracted to the financial hub for its close proximity to other Asian markets. Lower taxes are also a draw for many bankers, as Singapore’s top marginal income tax rate of 22 percent is less than half the level of Germany.
At the time, Asia was taking on a more important role for the bank, which was expanding beyond its early roots after setting up a Singapore outpost in the 1970s to help German companies such as Bayerische Motoren Werke AG and Siemens AG expand in the region.
As head of global credit trading and financing, Shah reports to investment bank head Mark Fedorcik and Ram Nayak, who runs the fixed-income, currencies business. His team, spread across Hong Kong, New York and London, makes money trading distressed debt and offering private credit in sectors from real estate to renewable energy in Europe, Asia and the US, people familiar with the business say. It also houses a mishmash of Deutsche Bank’s more complex loans.
Globally, private credit has mushroomed to nearly $1 trillion in the wake of the financial crisis as many commercial banks cut back on lending. Deutsche Bank is among the biggest players in the space, joining the likes of Apollo Global Management Group Inc. Other investment banks—from UBS Group AG to Credit Suisse Group AG—provide similar credit, yet none rely on this business as much as Deutsche Bank to generate earnings. “Our credit business has been a consistent performer for the bank for many years,’’ a bank spokesperson said. “It provides a wide range of banking services to clients including high quality secured lending. This activity benefits from the bank’s rigorous risk management processes, diverse business portfolio and long experience of the credit market.”
The team does transactions in Asia and elsewhere that other firms may be too nervous to touch, fueled by confidence that they have a firm grasp of the risks involved, bankers familiar with the strategy said. Shah’s team provides the high-risk credit, sometimes back-stopped by derivatives that have so far kept losses to a minimum. The hedges offer credit protection for the loans provided by Deutsche Bank, often to cash-strapped yet asset-rich Asian entrepreneurs, said the people. The team also provides short-term financing, known as mezzanine loans, earning interest as high as 15 percent, the people said. “There is an opening in the market, and Deutsche Bank fills it,” said Tom Kirchmaier, professor at the London School of Economics, referring to the division run by Shah. “On the other hand, lending to people with illiquid assets is always a tricky business and it’s hostage to the state of the economy and country risk. One can’t hedge that easily.”
The bank has been building the division over the past year—it recently hired credit traders in Singapore from Australia & New Zealand Banking Group Ltd. and has also hired a few dozen traders over the last year on either side of the Atlantic. While some have been replacements, a number are new positions.
The lender’s clients have included Indonesia’s Lippo Group, controlled by the billionaire Riady family. In India, the bank has traded the debt of shadow lender Altico Capital India Ltd.
China is also a growing market for the group. The bank is part of a joint venture with Huarong Rongde Asset Management Co., a unit of the troubled firm that was bailed out by Chinese banks in August. Deutsche Bank’s credit exposure in the world’s second-largest economy rose about 50 percent in just four years to 11.8 billion euros in 2020, according to annual reports.
That lending boost comes as the country is embroiled in a credit meltdown over developer China Evergrande Group. Contagion has spread to other real estate firms, sending junk bond yields to a decade high. Deutsche Bank Chief Financial Officer James von Moltke said at a conference last month that any fallout from its property exposure in China is “manageable.”
Distressed debt has been one of Deutsche Bank’s biggest moneymakers over the years. In the aftermath of the credit crisis, it became one of the biggest creditors to the collapsed Lehman Brothers Holdings Inc., earning more than $1 billion as the positions recovered, a person familiar with the transactions said. The firm got a further boost this week when a UK court ruled that Deutsche Bank and other holders of subordinated notes issued by a Lehman subsidiary must be paid before other claims are satisfied. The bank’s credit business also pushed into Ireland as the country began to recover from the biggest real-estate crash in Western Europe, underscoring its appetite for risky deals.
More recent wins for Shah’s group include a long-shot bet on Israeli shipping company Zim Integrated Shipping Services Ltd. that’s put the lender on track for one of its biggest gains since the “Big Short” trades against US subprime securities more than a decade ago. With the container shipper riding the wave of record-high freight rates, Deutsche Bank’s potential windfall could climb to almost $1 billion, Bloomberg News reported in June. From 2016, Deutsche Bank wagered less than $100 million on Zim’s bonds and bank loans that were trading at a heavy discount, and also bought equity. Those investments surged, and the bank recognized 300 million euros of revenue from the bet in the first half of this year.
Part of Deutsche Bank’s push in countries including India has been lending to cash-strapped tycoons and for purchases of distressed assets. Before 2018, that business was dominated by short-term funding from shadow banks and mutual funds, which have since retreated. India’s shadow-banking crisis and revitalized bankruptcy process are creating new opportunities for lenders including Deutsche Bank.
Shah’s business is showing no signs of slowing. Fedorcik said recently that revenue from trading securities accelerated in August and the first weeks of September after a slow start to the quarter. He confirmed guidance that revenue for the division—which includes Shah’s unit—will be about 9.3 billion euros this year. The bank is scheduled to report results on October 27.
For Shah and his global team, the question now is whether they can keep the momentum going.
As Angela Gallo, a senior finance lecturer at the Bayes Business School in London points out, the risks of these trades are much like structured products from the global financial crisis.
“The market underestimates the joint probability of having both credit markets and collateral markets in distress, especially when the latter are illiquid markets,” she said. “If you add complexity to the mix, the opaqueness adds risks to any trading deals.” Bloomberg News
Image courtesy of Lauryn Ishak/Bloomberg