Published On: Mon, Jun 17th, 2019

Deutsche Bank ‘creates £45bn bad bank’ as German lender faces ‘radical’ cuts | City & Business | Finance


The German lender is facing “radical” cuts after its failed merger with Commerzbank in April. A bad bank is traditionally used by lenders to hold or sell assets that are performing below market value, and can be used to remove bad loans from balance sheets. The bad bank will reportedly be known internally at Deutsche as the non-core asset unit. It will be made up of long-dated derivatives, according to The Financial Times, a contract that derives its value from the performance of an underlying entity.

The German lender believes profit or capital will not be dented by the bad bank, claiming the derivatives are non-toxic and have been predefined.

The Deutsche restructure will also include shrinking or shutting equity and will deal with rates trading businesses outside of Europe.

One senior figure at the bank told The FT: “The cuts need to be radical.

“We now have the capital and liquidity freedom to do what needs to be done.”

It is believed the bank will reveal the plans officially along with its half-year profits in late-July.

The bank reports second-quarter earnings on July 24.

In May, chief executive Christian Sewing promised shareholders “tough cutbacks” at its underperforming investment bank.

Shares in Deutsche, which have recently traded at record lows, were up just below 2.0 percent at 2.01pm BST.

In response to the FT report, Deutsche Bank said it was “working on measures to accelerate its transformation so as to improve its sustainable profitability”.

“We will update all stakeholders if and when required.”

The effort by Mr Sewing marks a further shift by the German lender away from investment banking to focus on more stable forms of revenue, such as transaction banking.

The bank is planning cuts at its US equities business, including prime brokerage and equity derivatives, to win over shareholders unhappy about its performance, four sources familiar with the matter told Reuters in May.

Deutsche created a similar division for non-core investments in 2012 with €128 billion (£114billion) in risk-weighted assets.

Deutsche wound up the unit nearly four years later, in 2016.



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Deutsche Bank ‘creates £45bn bad bank’ as German lender faces ‘radical’ cuts | City & Business | Finance