US regulators ask Deutsche Bank to clarify its "bad bank" proposal

Pedro Gonçalves
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US regulators ask Deutsche Bank to clarify its "bad bank" proposal

US regulators have sought explanation from Deutsche Bank about its "bad bank" proposal and its impact on US operations at the loss-making German lender, the Financial Times reported.

Concerns have been raised about the German bank's intention to create a "bad bank" holding up to €50bn's worth of non-core assets, with the indication that this would cause a significant reduction in Deutsche's operations in the US.

The proposals are part of a large-scale restructuring of Deutsche Bank, with a view to pivoting towards wealth management at investment banking's expense.

The Fed needs to know from Frankfurt how this is going to change its US operations"

It has been reported that Deutsche Bank is planning to reduce or close its US equities trading business. This has caused concern for US regulators, given the uncertainty it would create for the composition of Deutsche Bank's US holdings.

The overhaul would also include shrinking or shutting equity and rates trading businesses outside of Europe, a source told Reuters.

"The Fed needs to know from Frankfurt how this is going to change its US operations," according to one person familiar with the matter."There are lots of rumours swirling around about the scale of the cuts the bank is going to make."

The US arm of the bank is restricted from making payments to its parent company in Germany without Fed permission, after failing its annual stress test last year due to what the Fed said were "widespread and critical deficiencies" in its capital planning.

"As we said at the AGM on May 23, 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," Deutsche Bank said in a statement.

 

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