Deutsche Bank/Numis: deal buttresses City’s appeal

City of London landmarks include crumbling Roman walls. Pessimists fear Brexit is turning the modern financial district into a legacy ruin too. They will see Deutsche Bank’s acquisition of independent UK investment bank Numis as further evidence of dilapidation. They would be wrong.

The £410mn deal represents a slug of foreign capital heading into the City, in contrast to all the money that has lately gone in the other direction. Nor can it be bemoaned as a fire sale.

Deutsche is offering 350 pence in cash including 11p of dividends. That is equivalent to a hefty 60 per cent premium over the three-month average share price.

It is fair to note that a dearth of corporate finance deals gave Numis a very tough year to September 2022. Operating profits fell 77 per cent to £17mn. But Numis has remained profitable since 2010. It is going out at a price in line with its average value in 2021, a far stronger year.

Stock analysts are likelier to criticise Deutsche for buying than Numis bosses for selling. They would prefer the money to be spent on payouts than expanding in unfashionable investment banking.

The offer document makes it clear that this deal is not about cutting costs from the 344 staffers at Numis (some of which will profit handsomely) to cover the £157mn premium, but expansion.

Any savings would be immaterial to a bank earning billions of euros. The Numis wage bill has averaged a little over 54 per cent of revenues, £83mn in the past five years. It has a decent UK franchise: about 166 corporate clients in the UK. That beats the 145 Lex counted for JPMorgan Cazenove, though admittedly its customers are typically larger.

JPMorgan’s 2010 purchase of blue-blooded Cazenove sought to fill a hole in its European revenues. Culture clashes ensued. Deutsche believes Numis, whose executives have thrived on underdog status, will be an easier fit.

This is a rare vote of confidence in the City. Over the past eight years London has still generated a quarter of European corporate finance revenues. The question for Deutsche is whether Numis can do as well for its bottom line as Deutsche has done for Numis’s shareholders.

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