Deutsche Bank will be unable to sponsor initial public offerings in Hong Kong from July after the German lender failed to replace two regulated staff on time, disrupting the company’s plans to relaunch its Asia equities business.
The error means the IPO sponsor licence of Deutsche Securities Asia, the bank’s regional equity capital markets division, will lapse from next month, according to a person familiar with the matter and confirmed by the lender.
A person close to the Securities and Futures Commission, Hong Kong’s financial regulator, said the issue suggested there were “poor internal controls” at Deutsche, as the bank would have to replace the two senior employees and get approval from the SFC. This could be a slow process.
Banks in Hong Kong need to maintain two regulated IPO principals to be authorised as a sponsor.
The German lender plans to rebuild its equity capital markets division by recruiting in Asia-Pacific this year, despite closing much of the business in 2019. Deutsche restructured its equities research and IPO unit as part of plans to cut 18,000 jobs globally and dramatically scale back its investment bank. The company shed almost all its equity capital markets teams in Hong Kong.
Deutsche called the IPO licence issue a “timing mismatch” and said it had already recruited replacements, although the bank declined to specify when they would start. The lender is still able to underwrite IPOs until its sponsor licence is renewed, it said. This means it can market shares for a company float, a less lucrative and prestigious role than a sponsor.
According to the SFC register, Deutsche’s IPO principals until June were investment bankers Poon Tsz Yuen and Rowena Wang. Wang left the bank on June 16, while Poon is set to be removed from the register of authorised principals in early July, according to a person familiar with the matter. Deutsche confirmed the departures.
The bank’s plan to rebuild its equity business has been prompted in part by a string of blockbuster IPOs and strong trading volumes in Hong Kong this year. There has also been a boom in special purpose acquisition companies, or blank cheque vehicles, many of which have targeted companies in the region.
A senior executive at Deutsche in Hong Kong expressed disbelief when asked about the licence situation. He said it would be “crazy” for a global bank with a large legal and compliance division to let its IPO licence expire and not have a plan in place to replace the two authorised individuals.
The city’s regulators require companies to designate a sponsor at least two months before applying to list. Deutsche last served as a sponsor on the HK$1.3bn (US$167m) Hong Kong IPO of Greentown Management, a property management business, last year.
Separately, the SFC last week fined Deutsche Securities Asia HK$2.45m for “issuing incorrect statements to its prime brokerage clients” and “delaying reporting its failures to the SFC”.