(MENAFN- Gulf Times) Deutsche Bank AG, Germany's largest lender, is weighing a sale of its consumer banking business in what would mark a reversal of its pledge to remain a universal bank, said two people with knowledge of the matter.
Selling the retail unit, or part of it, would free up capital and lift returns while also providing funds to absorb the cost of scaling back investment banking businesses that aren't sufficiently profitable, said one person, who asked to remain anonymous because the company's deliberations are private.
Deutsche Bank has sought to keep a full-fledged investment bank and consumer-lending unit since co-chief executive officers Anshu Jain and Juergen Fitschen took over three years ago, even as rising capital requirements hurt profitability. The bank is completing a months-long strategic review to determine where it needs to trim operations to boost returns and capital levels.
A sale of the retail business will be positive for Deutsche Bank's shares as profitability in the unit has lagged behind peers, JPMorgan Chase & Co analysts led by Kian Abouhossein wrote in a note to clients Monday.
Shares rose as much as 4% and were 0.7% higher at ‚¬31.86 as of 1:19pm in Frankfurt.
A spokesman for Deutsche Bank said he could not comment.
The bank presented three options for revamping its strategy to its supervisory board on Friday, said the people. Neither the 20-member supervisory board nor the eight-member management board has expressed a clear preference, the people said.
The plan that would mark the biggest shift from the current model would see Postbank and the other consumer operations bundled together and sold to the public in 2017, the person said. That option, which would also see the investment bank unit narrow its focus, is expected to provide the quickest increase in shareholder returns, the people said.
Deutsche Bank's supervisory board prefers the sale of the entire consumer banking business via the stock exchange, Reuters reported on Saturday.
Deutsche Bank acquired Bonn-based Deutsche Postbank AG in 2010 to reduce its dependence on revenue from its trading and investment banking arm.
"Buying Postbank seemed like a good idea at the time to me as it helped to consolidate the very competitive German retail banking market," said Peter Braendle, who manages about ‚¬400mn ($436mn) of European equities at Swisscanto Asset Management in Zurich. "It also brought in funding in the form of deposits, but funding is very cheap these days.
Another scenario would see the company's Postbank unit merge with other consumer businesses and cuts made across Deutsche Bank, including the investment bank, said one person. The results would take as long as five years to take full effect, said the person.
A third option would be a sale of Postbank, which would free up capital by allowing the bank to shrink risk-weighted assets by about ‚¬45bn, the person said. Some of that equity could be used to shrink the leverage assets of its securities unit by ‚¬150bn as activities would be unwound, said the person. Cuts at the investment bank would focus on the company's business with hedge funds as well as parts of its derivatives and interest-rate trading desks that don't serve corporate customers, the person said.
"The strategy at the investment bank looks like a case of getting back to the roots, but they have to really differentiate when looking at where to scale back because there's still good money to be made in investment banking," Braendle said.
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