Deutsche Bank is reportedly being pressured by European regulators to trim its U.S. investment bank further after years of concerns that the unit is too large and too unprofitable.
Reports in the Financial Times on Sunday (April 14) said unnamed sources have revealed Deutsche’s own concerns about the lackluster performance of the unit, adding that informal discussions held last year within the bank put pressure on the FI’s Chief Executive Christian Sewing to cut back the unit’s operations.
One unnamed senior supervisory official told the publication that the watchdog “started to make our regulatory expectations clear about two years ago, and we continue to have the view” that Deutsche’s U.S. investment bank should shrink. The official added that this position would remain unchanged after a merger with Commerzbank, which Deutsche has been pursuing for several months.
According to reports, Deutsche is exploring whether that Commerzbank merger could potentially prop up its U.S. investment bank operations by quelling client concerns of counterparty risk at the unit. The merger would lead to an increase in retail deposits as well as a possible government investment in the combined entity, which reports said might lower funding costs at the investment bank as well.
Deutsche has already taken measures to reduce the size of the investment bank. Its debt levels dropped by 13 percent and the FI cut 7 percent of its staff, while resources have been reallocated to other key areas of the bank’s operations, including foreign exchange, transaction banking and secured lending, reports said.
In a statement, Deutsche said those actions “have already begun to yield results, and we believe they will lead to steady, sustainable improvements in our investment bank.”
But the bank’s EU watchdog is reportedly seeking further action, while unnamed sources have also noted that Deutsche Chairman Paul Achleitner is pushing to promote the bank as a viable alternative in Europe to U.S. investment banks, including Goldman Sachs.