Deutsche Bank has hired UBS' entire Indonesia equity research team consisting of five people to form the core of a new local markets equity operation. The operation will be a joint venture, 60% owned by the local staff and 40% owned by Deutsche Bank.

It will undertake all Deutsche's research and sales efforts in Indonesia while execution and trading will remain with Deutsche Bank, through its local operation called Deutsche Bank Securities Indonesia. Last month Deutsche Bank Securities Indonesia successfully bid for a seat on the Jakarta Stock Exchange and it will be retaining this and not passing it onto the JV.

The five who are moving from UBS include Heriyanto Irawan and Djuniardi Christanto, the two leading analysts at UBS in Jakarta. Also going with them are a research associate, one assistant and one equity salesman,

According to Matthew McGrath, a UBS spokesman, UBS will continue to cover some Indonesian stocks regionally out of Hong Kong and Singapore and its Indonesia equity strategy and economics coverage. The bank is already looking to replace those that have left. "Our commitment to this very important market remains completely unchanged," says McGrath.

Leading the research effort at the new house will be Irawan, a well-regarded analyst who regularly features in the top three places in Institutional Investor's annual research rankings. Before running UBS's Indonesia research effort he was head of HSBC's local equity research and has also worked for Merrill Lynch.

Deutsche Bank has a similar JV in the Philippines called Deutsche Regis, 51% owned by local staff and 49% by Deutsche. Deutsche Regis undertakes all research, sales, execution and trading whereas the Indonesian operation will just undertake research and sales.

The strategy behind these JVs is that they can take advantage of local cost structures while also using the overall brand and franchise of Deutsche Bank. For instance, costs on the staffing side can be kept down while at the same time taking advantage of the global bank's distribution and marketing capabilities to maximize revenues.

Indeed this model is a clever way to ensure that global banks still have local market representation in some of the smaller markets in the region without having to run them at an inevitable loss. By maintaining an equity interest, Deutsche can benefit from any upside and profit that occurs, while reducing its risk of having to run a loss making operation.

Moreover, staff are incentivized to maximize profits and not just ride the gravy train of global investment banking salaries. It is not clear yet what the name of the new Indonesian JV will be, nor if it will share Deutsche Bank's offices. Sources close to the situation say the emphasis will be on transparency in management structures and responsibilities.