Deutsche Bank is considering the creation of a so-called bad bank to offload €30-to €50 billion in bad assets.
The German lender is considering divesting from investment banking to focus on European markets, transaction banking, and private wealth management. The main assets to shed will be long-dated derivatives, while the bank will hold on to its better-performing bond-trading business.
Deutsche Bank chief executive Christian Sewing could announce the measures in July. The objective is to shed non-profit making assets to achieve a 4% return on equity a year. Over the first quarter, Deutsche generated a 1,3% profit, far below the expected benchmark. Deutsche’s investment banking has registered losses in the past two quarters while exposing the lender to a series of misconduct scandals.
The bank’s value dipped below the €6 per share benchmark in May, its lowest in 149 years.
Deutsche’s management believes the time is right for a radical revamp of the lenders’ profile as it has managed to create a €260 billion buffer of cash, which means it is no longer dependent on investment assets for its cash flow.