International banks step-up German fixed-income derivatives coverage

Deregulation of the German insurance market is attracting the world's top investment banks to expand fixed-income derivatives operations in Frankfurt.

UBS Warburg, Citigroup and ABN Amro have all made senior and widespread hires in the German financial centre to boost their foreign exchange and fixed-income coverage. Goldman Sachs and Merrill Lynch are also reportedly seeking staff in the centre, while JP Morgan Chase has revamped its German forex sales team in London in response to the growing trend.

"We have seen - and expect to see - continued growth in the German market," said Adam Burke, head of European forex at JP Morgan Chase in London. "The pension fund industry in Germany is set to grow significantly."

Pension funds splitting from their traditional house banks also present large pools of new business for foreign banks.

"The German institutional market is really opening up and will continue to do so over the next two years," said Ralph Zurkinden, Zurich-based head of forex distribution for Switzerland and Germany at UBS Warburg. "The usual bank relationships that have existed in the past don't hold as much now."

The growth of foreign banks' business with German funds is also not limited to within Germany's borders: Burke claimed JP Morgan Chase's large custody business in London is also starting to make headway with some German funds.

Combined with the unique experience of the German insurance market, institutional investors in Germany are also looking to foreign banks as a result of developments in the wider fund management industry.

JP Morgan Chase has recently hired three German forex sales dealers, based in London, including a new head of German sales, Andrea Mohr, who started yesterday.

Citigroup has made three forex hires in Frankfurt in recent weeks and a further nine in fixed-income sales in Germany last week. Seven of those joined from Deutsche Bank.

Meanwhile, UBS Warburg announced two senior appointments in Germany last week, appointing Christian Holste as managing director and head of German fixed-income distribution in Frankfurt. He joins at the end of the year and reports to David Shulman, head of global fixed-income distribution and Manfred Schepers, head of fixed income Europe. The Swiss bank has had an established desk for the German institutional and corporate market for five years and is now looking to expand it, said UBS's Zurkinden.

Meanwhile, Dutch bank ABN Amro has hired Hermann Watzinger in Frankfurt to manage its global financial markets group in Germany, covering fixed income, including structured finance, treasury, asset securitisation and fixed-income derivatives.

Problems in the domestic banking industry mean foreign banks are in a good position to pick up extra market share in Germany. Shareholders are increasingly concerned about the state of German banks, with Commerzbank and Dresdner Kleinwort Wasserstein both cutting costs aggressively and reviewing headcounts across investment banking.