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| Dan Toscano |
Banker Banter is a new periodic feature in which LMW sits down with bankers to discuss the state of the market and happenings at their shops. Dan Toscano, Deutsche Bank managing director and group head, described himself as the accidental tourist. "I didn't end up here, I was here before it was formed," he joked about his time at the bank. "I joined Bankers Trust in 1992 and haven't managed to get kicked out yet." During his 15 plus years on the Street, Toscano has ridden the bank acquisition tide starting at BT and moving up to the head of loans at Deutsche. He reflects on his time in the market and the changes at the bank.
Toscano actually got his start before there was even a true market, when BT was selling most of its paper to banks, not investors. A University of Connecticut graduate with an MBA from Wharton, his first job after college was at what is now part of Bank of Tokyo-Mitsubishi where he worked in restructuring. "It's a great background," he stated. "[You can] see everyone's mistakes and with hindsight try and figure out what could have been done differently." It was through deals he worked on with members of BT that brought him to the bank he now calls home and where he spent his first two years working primarily on LBO deals. In 1994, Bram Smith, now senior managing director, leveraged finance at Bear Stearns, tapped him to work on the capital markets side.
In his view, the biggest change in the loan market has been the way money is lent in terms of pools of capital. He explained that loans do not have the highest absolute returns of the major asset classes, but when looking at the risk profile, over cycles it outperforms other asset classes. It has been that development that has pushed the market. Another shift, evident by constantly changing business cards, is the consolidation of banks over the years, narrowing the number of players immensely.
Building From Scratch
At Deutsche, the biggest change has been the literal construction of an investment bank from scratch. He described the past six years as taking the good aspects of BT, a successful niche firm, and building up a leveraged finance platform. The bank's market share hovers around 6-8% and Toscano expects that is where it will stay. To be bigger would mean being all things to all people, which is not a model Deutsche follows. Rather it focuses on certain industries: energy, real estate, the gaming and leisure area and chemicals. It is not as entrenched in media and health care, but is looking to expand in these sectors, which should lead to more deals for its leveraged loan group. The health care team has been on a hiring spree adding many of its 40 members, including 12 managing directors, in the past two years. "It starts with having the right people and we've been on a tear," said Toscano of the bank's hiring. Health care was an area Alex. Brown & Co. served before it was bought by Bankers Trust in 1997. In 1999 Deutsche Bank acquired and integrated Bankers Trust.
"We've had this organizational structure as long as I've been here and it could even be before that," Toscano explained. "We don't strive to be number one; our goal is to be number one and have market share in situations where we add value. We are not a big believer in generic league tables or being all things to all people; we're a big believer in market share and we're a big believer in market share with key clients." He stressed that the loan group does not try to be in every deal; rather it tries to focus on areas where it feels it can add value. He cited the upcoming Toys 'R Us deal, set to hit the market late summer, as an area where the group could play on the strengths and expertise of Deutsche's real estate group. Bank of America is the other bookrunner. "I think our corporate presence is growing, our investment banking model is new," he said. "It takes a while before people come to see you for what you are capable of doing. Even in our industry groups, our focus isn't on covering every single company in every sector; our focus is on figuring out where we've got the best competitive advantage and working that angle twice as hard. If something is further down the food chain, we'll leave that to someone else that may be better equipped to handle it." The company is also out with a deal for Williams Scotsman with Banc of America Securities; a facility for Penn National Gaming with Goldman Sachs and Lehman Brothers and a facility for Sturm Foods.
Toscano said he believes that Deutsche's platform is slightly different than some of the other banks because it is substantially involved both in the US and Europe. The bank was third in leveraged loans in Europe last year. "We have the experience, we are linked to our desk, our desk is established there," he said. "We've always been big in both markets. It's a reasonably strong competitive advantage for us."
Trading Spaces
The bank has also been focusing on increasing its trading focus and altering its sales desk. Having relied on just one dealer for a number of years, it now has two par traders -- a former par salesman, Anthony Logrippo, and a trader who just moved back from London, Steve Snizek. They moved into their seats around Labor Day. The bank has also added more traders to its distressed products group. With more traders, a greater focus has been placed on the secondary market. "It's a good business for us, it's profitable and it just keeps you better plugged into the market, what's going on," Toscano said. "Obviously things are changing fast, particularly right now, and the best place to see things move is in the secondary market."
In the last two weeks, his group has had a makeover with Nancy Del Genio, managing director and sales manager, leaving to take time off and possibly pursue other banking opportunities. Other changes included Jono Peters and Clark Peterson moving over to cover commercial banks, filling the spot vacated by Kevin Dooley, who left in March to become a trader at TD Securities. Alex Bici, a research analyst, will move to the sales desk to cover hedge funds, an area not previously covered on the par side. He is being replaced by Francis Blair. Matt Vincequerra moved to the London desk last week and will continue as a par salesman (LMW, 5/27).
The big question mark Toscano sees in the market right now is the role of hedge funds and whether they are here to stay. People refer to them as the "fast money crowd," he said because they rush in and rush out. He admitted that there is probably a fair bit of that but has also found that some will stay because they like the asset class. It has a great return profile that he said you can't really find anywhere else.
