Energy Risk Manager of the Year, Asia – Deutsche Bank

Despite the extreme volatility and uncertainty in Asian commodity markets this year, Deutsche Bank continued to launch new products, doubling revenues across its commodities business over the last 12 months. The combination of its strong local presence and wide international reach, together with its specialisation in options trading in Asia have been key to its success, earning it the title of Energy Risk Manager of the Year, Asia for the second consecutive year.

The bank’s approach to organising its commodities team sets it apart. It has a strong focus on employing nonlinear staff who are both options specialists and cross-product specialists. They advise clients on a range of products from simple delta-one exposures to more structured risk management products with variable pay-out options.

“Our specialist options team allows clients to not only price and execute complex structures in the Asian time zone, but also enables Deutsche to value complex physical contracts in markets ranging from oil through to LNG and even tariff markets in electricity,” says Simon Grenfell, head of commodities.

In the wake of the financial crisis at the end of 2008, the role of risk manager evolved dramatically from that of simply hedging market price movements to giving far greater consideration to counterparty credit risk, market liquidity and regional compliance. Rather than moving to attract new clients, Deutsche Bank focused on servicing existing clients. “We were much more focused on managing our existing client relationships and customer retention levels and over the last six months we have seen new clients coming into the energy sector from within Deutsche Bank’s existing client base,” says Grenfell.

Emissions has become one of the bank’s most significant businesses in Asia, alongside metals and oil trading. The bank now offers an on-line trading platform called Liquid Carbon, which allows clients to sell CERs on a spot basis. This has been of particular benefit for the 28% of global CDM projects that have no Annex 1 partner, which is a requirement for selling CERs on international carbon markets. From its start up in 2007, Deutsche Bank’s trading of the OTC Japanese crude cocktail (JCC) has become one of the bank’s fastest growing oil products over the past year. JCCs are now used to purchase the majority of LNG contracts in Asia.

One of the bank’s most innovative product launches this year has been the OTC iron ore spot contract in May 2008. Since then demand for this product has steadily increased from both end-users and producers and Deutsche Bank formed a joint venture with steel trader Stemcor to provide a range of steel hedging tools.

Developing a local presence across Asia is challenging but Grenfell expects that commodities markets in Asia will continue to develop over the next five years at both a local level as well as with international linkage to the major markets. “If you look at the Shanghai futures exchange or the two commodity exchanges in India, NCDEX and MCX, there are challenges to foreign institutions accessing them and these have traditionally been to prevent arbitrage with Western markets,” he says. Deutsche Bank has overcome these challenges by working with various local entities and legal institutions to provide risk management products to its domestic clients.

The bank has been active in developing business onshore in China, transacting onshore OTC derivatives for both oil and metals. At the beginning of 2008, Deutsche Bank launched onshore USD trading in China of commodities contracts benchmarked to LME prices. “Our existing presence and commodities capabilities in China made this process much simpler and more efficient for our Chinese domestic clients,” says Grenfell. The bank also became an authorised dealer in India for commodities and is exploring a relationship with an Indian power exchange, as well as eying Australian power in its continuing expansion across the region.

Overall, Grenfell attributes the bank’s success to its people. “I think having good experienced people who work well as a team is the hallmark of our success,” he says.

Sadly, this year will also be remembered for the loss of Kallyana Sundram, a valued team member who passed away suddenly in August. “Sundram was a key contributor to the success of the team and we are very sad by his recent and sudden passing,” says Grenfell. “He will be sorely missed.”