Reuters reported that Deutsche Bank may add some of its problematic assets to the “bad bank” category soon. It will be contingent upon the bank’s sale of assets that were previously added to this category.
Senior executives talk of the change
According to three sources within the bank, a few senior officials of the lender have already discussed the proposal of moving the problematic asset to the “bad bank” category. The bank created this unit this year or as a capital release unit. However, the discussions are considered to be only preliminary. Sources suggest that these discussions do not mean that the bank will necessarily follow up on this plan. When asked, a spokesperson for Deutsche Bank said that they don’t have any plans to add any more assets to the bad bank unit.
This doesn’t mean that the bank hasn’t pondered over the option formally. The option has frequently been cited at some of the top-level meetings and discussions within the bank. They have to think about turning the bank’s fortunes around and that too with a very little wiggle room.
The bank is currently looking for more capital so it can absorb recent losses. However, after having raised over 29.3 billion euros from its investors, the bank doesn’t want to burden its investors with a new capital infusion plan. The investors are already shocked with the 75% slump in Deutsche’s stock price over the course of the last 4+ years.
What does Deutsche Bank plan?
It intends to handle the situation by selling problem assets. They are also looking to get rid of long-dated derivatives which have been tipping its records off-balance since long. John Cryan’s successor Christian Sewing is looking at a completely reshape for the lender. He is focusing on developing its global investment banking business over the course of the next few years to turn the company’s fortunes.
The bad bank was Sewing’s idea to clear up over 74 billion euros of its assets that had been risk-weighted for sale or winding down. This will lead to a broad restructuring plan of the bank which will also see 18,000 employees getting the pink slip. The bank is expected to spend 7.4 billion euros in this restructuring plan while it tries to exit all its unprofitable businesses and adopts a leaner, more profitable model.