Deutsche Bank has announced that as part of a complete overhaul of its trading operations it’s creating a non-core asset unit, or “bad bank,” to house tens of billions of euros in assets, according to a report by the Financial Times.
Bank CEO Christian Sewing is trying to move the bank away from investment banking as part of the overhaul. The assets will be held or sold by the bank in accounts at up to around €50bn, after risk is adjusted.
Also as part of the changes, the bank’s equity and rates trading operations outside of Europe are going to be either closed or become smaller. Managers are also going to reveal a focus on wealth management and transaction banking.
The bad bank will mostly be made up of long-dated derivatives, and Sewing will probably announce the changes at the end of July during the bank’s mid-year results. On the heels of the news, Deutsche Bank shares went up 3 percent, to €6.22.
The final scale of the bad bank keeps moving, but some executives are saying that there should be at least €30 billion of risk-weighted assets, and an eventual size of between €40 and €50 billion. It could account for as much as 14 percent of the bank’s balance sheet at the upper end.
“The cuts need to be radical,” said one bank senior executive. “It makes sense for us to put all these long-term, nil-revenue assets in a non-core unit. We now have the capital and liquidity freedom to do what needs to be done; we couldn’t have acted decisively much sooner because we needed to have built up those buffers.”
In a statement, Deutsche Bank said that it wants to keep moving toward its goals.
“Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability. We will update all stakeholders if and when required.”