By Eyk Henning
FRANKFURT-- Deutsche Bank AG's executive board is leaning toward
disposing of its mass-retail unit Postbank and cutting around
EUR200 billion ($216.2 billion) in investment-banking assets as it
puts the final touches on its strategy review, according to people
familiar with the matter.
Under this plan, Deutsche Bank will float a majority stake in
Postbank on the stock market over the next years, the people said.
If a sale happens, Co-Chief Executives Anshu Jain and Jürgen
Fitschen would thereby unwind the acquisition of Postbank, which
Duetsche Bank bought for more than EUR6 billion under then-CEO
Josef Ackerman in several steps starting in 2008.
Deutsche Bank has struggled to reap synergies from Postbank's
integration. New banking rules, ultralow interest rates and fierce
competition on Germany's retail-banking market have also dented
Deutsche Bank's profitability.
A more radical option under discussion would see Deutsche Bank
disposing of the entire retail operation, including Duetche's
Bank's own retail operations and Postbank's, the people said.
However, a majority on Deutsche Bank's executive board is reluctant
to such a move because it would pose funding problems for the
remaining operations, these people said. The executive board will
make a final decision next week before recommending it to the
supervisory board in a closed-door meeting on Friday, these people
added.
Postbank contributed around EUR400 million, or 12% to Deutsche
Bank's pretax profit of EUR3.1 billion last year. Disposing of it
would also mean that around 14,800 employees and around 6,000
branches would go. Including Postbank, Deutsche Bank has roughly
48,000 employees in its entire retail operations and around 100,000
employees in total. Deutsche Bank will keep its own retail
franchise and the advisory business for small and medium
enterprises, which recorded a combined EUR652 million in pretax
profit last year.
While the step would take away a stable source of income for the
giant German lender, it would improve its profitability and make it
easier to meet capital -adequacy requirements. Since news of a
potential sale of Postbank surfaced in mid-December, Deutsche
Bank's shares have surged by 32%, catching up with the broader
banking sector in the Stoxx 600, which gained 15% in that time.
Deutsche Bank has lagged behind rivals in terms of profitability
and share price since Messrs. Jain and Fitschen took over the helm
mid-2012. Deutsche Bank's underperformance ignited the anger of
investors and increased pressure on the bank's leaders to turn
around.
Several large shareholders privately said they would welcome a
disposal of Postbank or the entire retail operations because that
would finally improve profitability and facilitate meeting capital
adequacy requirements. Many analysts agree. JP Morgan Cazenove
analyst Kian Abouhossein said in a recent note that floating or
selling Postbank or all of Deutsche Bank's retail operations would
be "positive for the share price" as "the return on equity has been
low" in these.
The option means Deutsche Bank's own retail-branch network,
which will remain in the bank, will have to shrink the network of
its 700 branches while emphasizing digitization. In a similar move,
UniCredit SpA's German unit HVB is shedding roughly half of its 600
branches while widening online services and strengthening flagship
stores.
Selling Postbank doesn't mean Deutsche bank's investment-banking
operations get away unscathed. Around EUR200 billion of its assets
have to go, people familiar with the matter said earlier. Deutsche
Bank will also cut back at prime brokerage with hedge funds, rates
trading and repo business with other banks, these people said.
The other option, spinning off the entire retail operation,
would also boost Deutsche Bank's profitability and pre-empt
possible future bank separation rules. Analysts have suggested the
option would transform Deutsche Bank into a European-based version
of Goldman Sachs Group Inc., largely reliant on investment
banking.
While some executives preferred such a model initially,
according to people familiar with the matter, they now feel it
would worsen the funding situation for the remaining operations.
Ratings companies and regulators encourage banks to fund themselves
with client deposits and debt instruments like bonds. Selling the
entire retail-banking activities would shave off more than EUR300
billion or 33% of Deutsche Bank's overall deposits. "The funding
bit is kind of tricky" but could be manageable, analyst Omar Fall
of Jefferies Group Inc said in a recent note.
Mr. Jain in the past weeks and months several times hinted that
Deutsche Bank will remain a strong investment bank, saying that
European companies will increasingly need these. "Facts speak
against emotions. Europe's [economy] needs a better balance between
bank lending and capital markets. Deutsche Bank will be part of
that," Mr. Jain told a conference in March. Europe shouldn't have
to solely rely on U.S. banks to provide large and small and
medium-size corporates with access to bond markets, he added.
Write to Eyk Henning at eyk.henning@wsj.com
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