Deutsche cuts out $1 trillion in risk drive

Deutsche Bank cut out $1 trillion of what it described as 'predatory trades' last year, as it repositioned its forex business to make it more profitable.

Rhomaios Ram, European head of commodities and currencies at Deutsche Bank in London, said the decision to cut so much trade off the bank's foreign exchange platform had been made to reduce trades from aggressive customers who were not delivering margin.

"We have become more discriminating about who is a client and who is a counterparty. We have developed very sophisticated tools to enable us to distinguish between flow that is profitable and that which is not," Ram said. "We are ahead of the majority of the industry in terms of risk management techniques."

He said the bank had stopped doing trades with a number of aggressive hedge funds, program trading operations and prop shops. However, he said overall trading volumes for the bank had increased significantly, despite the shift in focus, with a greater proportion of business going over its Autobahn FX platform.

Deutsche's share of FX business relative to its major rivals looks to have held up last year. The move to focus on trade that delivers higher margin has resulted in the bank delivering less liquidity compared with multi-bank portals.

But an official at one such platform said other banks were less concerned with aggressive trading. "In a sense, there is no such thing as predatory trading. If a bank is putting out a price that it is losing money on, the onus is on it to make sure its pricing engine does not lead to positions being taken that damage it," he said.

He added that he had seen Deutsche Bank's flow drop considerably in 2005 on the platform. However, Ram said the bank had not widened spreads to deter unprofitable business. "We have kept our spreads exactly the same. We believe the reason we saw less flow on some portals is that others have made their spreads tighter."