How do you see developments in the local debt markets? Have they become a bigger part of Deutsche's business in this region?

The model has shifted from three years ago when Asia was very focused on the cross-border and hard currency bond market. The issuance numbers in local currency have grown extraordinarily, and that's one of the strengths of being on the ground. We are in 11 countries in Asia with 300 in Asia. Jonathan Paul

We are very focused on the local currency business. For example in Malaysia, we are the largest non-Malaysian underwriter bonds in ringgit. What we found is, being on the ground in all these different places gives us underwriting opportunities, secondary trading and foreign exchange which grows into more complex derivatives. An example of this is Korea. Obviously this is the most sophisticated market in the Asian region. They have liquid futures, and we are getting a lot of interest from foreign clients and US hedge funds. And this year there's been an explosion of activity in Korean won derivatives. So we've been selling a lot of Korean won structured products to investors. The same thing would be true in Thailand.

You need a business model like ours to be able to do that, because you have to have very good risk management and very good people. Generally we've taken people for these jobs from London or New York, together with the technology from the global trading platforms and put them into Asia. That's clearly the right model.

We are also doing transactions now in hybrid credit. That's combining a credit-linked note, for instance with a range and accrual structure. Our competition might be marketing each one of those transactions on a stand alone basis. We'll be combining them. The risk management of that sort of thing is pretty complex, but that's how we try and stay ahead of the competition.

G7 cross-border underwriting, is important to us, it is also important to be doing well across a broad range of products, because different parts of the business are strong at different times.

The key thing for you, Citi, HSBC, CSFB and others doing this business is that you have bank licenses. Is the Korean business based on having a double A rating and a bank license?

Correct. Plus having a large presence on the ground. We have half a dozen salespeople, traders, capital markets people on the ground and a large banking presence. And a lot of relationships. But you're right, you have to have to have a securities license and bank license in all these countries to be successful.

The rumour is that Deutsche makes a lots of money in swaps in Korea.

We do well in Korea. It is strategically important and profitable for us.

If you look at Asia as a whole, a significant percentage of the global revenue as well as bottom line in Global Markets comes from Asia.

Is it important to have a good relationship with the local investment banks?

It is, because you need to sometimes work jointly with these firms to underwrite transactions, or to place them, or to structure them. We don't want to be seen as an outsider and we think it's important to work closely with these local houses.

The Korean market is very profitable; is the Singapore local market a lot less enticing?

We centralize a lot of operations in Singapore. If you strip it out and look at just the Singapore dollar business, we are a primary dealer in the government bond business, we do a lot of swaps business, there is an increasing amount of flow from foreign investors into the Singapore dollar market, and there is primary underwriting. Overall it's an important place for us to be. If anything we want to grow our presence in Singapore.

It's interesting hearing stories from the competition about shrinking their headcount in Singapore. Our headcount plan is to grow by about 30 or so people across Asia. Frankly, I can't find enough good people to hire, with the right level of experience. That's a big challenge, and is a limitation to our growth. Our plan is to grow our revenues by 20% this year. We think that's very achievable.

Ours is a growth story. I think a lot of our competition are consolidating, and cutting costs and trying to squeeze their operations as hard as they can.

Is it fair to say the visible public deals, would be only about 10% of your overall profits. It's the under the radar screen stuff that makes all the money, isn't it?

It's a very interesting point. Journalists normally focus on the visible things you can measure. Honestly, I don't break the business into those pieces.

However, new issue underwriting does drive other businesses. It drives the liability hedging business for the issuers. It drives secondary trading. When we led the $1 billion deal for the Philippines this year, around 220 clients participated. With that kind of placement, you see a lot of trading afterwards. So to just talk about the fee is a little bit misleading.

But you're right, there is a lot that goes on beyond the radar screen that is not very accurately measured.

Fees are really under pressure, with deals such as the Philippine bond paying only 0.32%. You can't make a lot of money on those types of deals.

Yes, but these are franchise transactions. The Philippines is very important for the franchise. We also have some internal objectives for league tables.

Do you think paradoxically, while the fees on public deals are coming down, those on the hybrid, below-the-radar screen deals they are going up?

No. There is more competition in every area of our business. The only advantage we have, is to be first mover in a lot of these new products.

For example, at the start of the year, the Korean yield curve implied much, much higher interest rates. And we went out to our clients, and said this is what that market says is going to happen to rates. Clients said, yes, they could go up, but it will be fairly measured and cautious and rates won't move up a lot. So we said, okay, if you don't believe the market, here are some ideas for what you could do to take advantage of the local interest rate environment. For them, this was more interesting, since Enron had just happened, and everyone was very cautious about credit.

We had a window, where we were ahead of others, but clients go out and get competitive pricing. So it becomes competitive very quickly.

We are a large flow operation. Some of our erstwhile competitors focus solely on a smaller number of transactions where there is higher yield, such as M&A. That's not our model, ours is broad, big flow, low margin approach. And that reduces your risk. In a market where those M&A transactions don't materialise, it puts that less diversified business model under a lot of stress.

As a member of the management committee of Global Markets, my job is to bring more resources into the region. Japan is another part of the equation. We put an emerging markets specialist in Tokyo in the early part of the year and that has yielded substantial benefits in terms of sourcing and placing assets in and out of Tokyo. Probably half his time is spent on Asia and the other half on Latin America.

Is it the case that because Asia has a lot of currencies, and is very export-focused, that the forex business is relatively more profitable here?

If you looked at absolute trading margins, it might be slightly wider and that reflects a liquidity premium. The only thing is that there aren't that many people with the size and volumes you get in the major trading blocs. We view FX as a core strategic product of the bank. So we want to be one of the top two players across the region. We're creating a group that is dedicated to covering corporates. We used to have a classic split between fixed income and foreign exchange. We changed that to being corporate and financial institutions, taking people from foreign exchange and capital markets and creating one team to cover corporates. I think that will yield very interesting results.

In Asian forex, are five institutions now taking 90% of the revenues?

We estimate the wallet size to be $750 to $1 billion in Asia and Deutsche is a major participant, we think the top five banks take 75% of the pie - what's happening is that the big banks are getting bigger as we get more efficient trading larger volumes at lower margins.

Is the monoline investment bank approach now under pressure?

The niche model to Asia is a very difficult one to sustain. When we talk to a client we can talk about absolutely everything and that is key. If you can't do that, you're probably irrelevant to a lot of the clients out here.

If you look at our business, we have one of the largest businesses selling assets into China. It's a G7 currency business. Once we get our renminbi license, we think there is huge potential down the road. I am very bullish on China, although I think it will take some time.