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Deutsche Bank Hong Kong IPO license expires due to manpower error

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After Deutsche Bank failed to replace two supervised employees in time, Deutsche Bank will not be able to sponsor an IPO in Hong Kong from July, which has hit the company’s plan to restart its Asian equity business.

According to a person familiar with the matter, the error means that the IPO sponsor license of Deutsche Securities Asia, the bank’s regional equity capital market unit, will expire next month.

A person close to the Securities and Futures Commission of Hong Kong’s financial regulator said that the issue indicated that Deutsche Bank had “bad internal controls” because the bank would have to replace two senior employees and obtain approval from the Securities Regulatory Commission. This may be a slow process.

Hong Kong banks need to maintain two regulated IPO principals in order to be authorized as sponsors.

The German bank plans to rebuild its equity capital markets department through recruitment in the Asia-Pacific region this year, although Close most businesses in 2019Deutsche Bank reorganized its equity research and IPO departments as part of a plan to lay off 18,000 employees worldwide and significantly reduce the size of its investment bank. The company has laid off almost all its equity capital market teams in Hong Kong.

Deutsche Bank called the IPO licensing issue a “time mismatch” and said it had recruited replacements, although the bank declined to say when they started. It said that the lender can still underwrite the IPO until its sponsor license is renewed. This means that it can sell shares for the company’s listing, which is a less profitable role than sponsors.

According to the register of the China Securities Regulatory Commission, as of June, Deutsche Bank’s IPO leaders were investment bankers Poon Tsz Yuen and Rowena Wang. According to people familiar with the matter, Wang left the bank on June 16 and Pan Ding was removed from the list of authorized principals in early July. Deutsche Bank confirmed the resignation.

The bank’s plan to rebuild its equity business is partly a series of Hong Kong’s IPO and strong trading volume this year. The city has also experienced a boom in special purpose acquisition companies or blank check vehicles, many of which have targeted companies in the area.

When asked about the licensing situation, a senior manager of Deutsche Bank in Hong Kong expressed disbelief. He said that it would be “crazy” for a global bank with a large legal and compliance department to expire its IPO license and not have a plan to replace the two authorized personnel.

The city’s regulatory agency requires companies to appoint a sponsor at least two months before applying for listing. Last year, Deutsche Bank acted as the sponsor of the Hong Kong IPO of 1.3 billion Hong Kong dollars (US$170 million) for the property management business Greentown Management.

In addition, the China Securities Regulatory Commission imposed a fine of HK$2.45 million on Deutsche Securities Asia last week for “making incorrect statements to its prime brokerage clients” and “delaying reporting its failure to the Securities Regulatory Commission.”

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