Deutsche Bank

Financial Fire Sale

Jürgen asking Anshu what he'd like to sell. Source: DPA
The Deutsche Bank co-chief executives, Jürgen Fitschen, left, and Anshu Jain, right, may be forced to sell off parts of the bank to meet tighter banking controls.
  • Why it matters

    Why it matters

    • If Deutsche Bank is forced to sell off some businesses, it could stoke Germany’s already growing market for mergers and acquisitions.
    •  
  • Facts

    Facts

    • Deutsche Bank may be forced to sell off units, including Postbank, to meet new tougher capital requirements.
    • The bank’s investment bankers and retail bankers are mobilizing to protect their domains from possible break-up.
    • The bank’s leverage ratio, a measure of how completely it deploys assets, is at 3.3%, barely above a 3% legal minimum.
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    Audio

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These are uncertain times at Deutsche Bank.

Heading into next year, co-chief executives Anshu Jain and Jürgen Fitschen will have to put Germany’s largest financial institution on a decisive new course to ensure success and calm investors. But in doing so, there are risks of drastic cuts to its business model.

The bank is being prodded by the tightening of capital requirements by international financial regulators. The focus will be on the so-called “leverage ratio,” which measures total indebtedness relative to a bank’s assets and equity capital. The riskiness of a financial institution’s business dealings underlying the figure is irrelevant.

So far, Deutsche Bank hovers just above the minimum threshold of 3 percent at 3.3 percent. The German financial giant aims to reach 3.5 percent by the end of 2015.

The Frankfurt-based bank wants to build up a buffer, because it expects that the current minimum rate will be raised even further, said Chief Financial Officer Stefan Krause at the presentation of the bank’s quarterly results in October.

For example, politicians from the Green Party want to raise the ratio to 5 percent. Even if supervisors were to go to 4 percent, the bank would be forced to sell business divisions or pull out of some foreign markets to shed billions of euros from its balance sheet.

“We must reduce the size of the bank, and part of that involves the reduction of assets throughout the entire group,” one bank source told Handelsblatt. The source said significant cuts would have to be made to total assets of €1.7 trillion ($2.08 trillion).

Selling the Postbank would be a possible way to reduce the balance sheet total and in doing so raise the leverage ratio

No decisions have yet been made, according to financial circles around the bank. But the retail unit Postbank, Deutsche Bank’s asset management business and some foreign market units could come under scrutiny.

“These are questions that we will be occupying ourselves with in the next few months, but there are currently no decisions made about them,” a source said Thursday.

In official statements, the Germany’s largest bank is remaining noncommittal.

“We have always made clear that the bank will examine and further develop its strategy in the coming year,” stated a bank spokesman. It would be “irresponsible” to speculate over the sale of business areas, he said. According to business monthly Manager Magazin, Mr. Jain at least no longer considers the sale of the Postbank, which has belonged to the group since 2010, a taboo.

 

Deutsche Bank's Goals

 

The business model for Deutsche Bank is based on investment banking, asset management and private banking.

Selling Postbank would reduce the balance sheet total and raise the leverage ratio.

“For business reasons that still makes little sense,” said analyst Dieter Hein, adding that Postbank contributes less than 10 percent to the balance sheet. “It would make more sense to reduce loss-making investment banking, which accounts for more than 70 percent of the balance sheet total,” he said.

Next year, Mr. Jain and Mr. Fitschen are expected to concede that the goals they set themselves in the “Strategy 2015+” will partly not be reached.

The cost-income ratio goal of 65 percent has receded into the distance. To earn 1 euro, the group must put in 77 cents, and that is not accounting for the costs of ongoing legal disputes.

“Therefore the program for cost reductions in the billions will surely be extended beyond this coming year, and furthermore it could come to branch closures,” a source close to the supervisory board said Thursday.

Laura de la Motte, Peter Köhler and Michael Maisch cover the banking industry for Handelsblatt. To contact them: delamotte@handelsblatt.comkoehler@handelsblatt.com and maisch@handelsblatt.com

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