In sync with its strategy to move away from non-core/ less profitable operations amid increased regulations, Deutsche Bank AG (DB) is undergoing advanced talks to sell its 17.5% stake in London-based hedge-fund firm, Arrowgrass Capital Partners LLP, as per Wall Street Journal. The minority stake is expected to be purchased by CA-based Foundation Capital Partners.
Foundation Capital will likely pay $100–$200 million for Deutsche Bank and other equity stakes totaling more than 20% in Arrowgrass. Notably, the deal is expected to be completed this month itself.
Arrowgrass, spun out of Deutsche Bank in 2008, has offices in London and New York. The firm manages three funds with combined assets under management of nearly $5 billion.
The news of the proposed stake sale by Deutsche Bank comes at a time when several other private equity firms, including Blackstone Group LP (BX) and Dyal Capital Partners, have raised funds to purchase such minority stakes. Further, increased regulations and capital requirements also form reasons behind this stake sale.
Last month, Deutsche Bank announced its plans to exit from most of its trading in credit-default swaps (“CDS”), a derivative contract used as protection against losses. The company intends to cease trading in investment-grade and high-yield corporate credit swaps in U.S. and European companies, collectively known as “single name” CDS. (Read More: Deutsche Bank Trims CDS Trade Amid Stricter Laws).
We believe that Deutsche Bank’s latest move will benefit it in the long term, as by offloading non-core businesses, the company will be able to focus more on its primary operations.
Currently, Deutsche Bank carries a Zacks Rank #4 (Sell). Some better-ranked foreign banks include Banco Latinoamericano de Comercio Exterior, S.A (BLX) and Itaú Unibanco Holding S.A. (ITUB). Both these stocks hold a Zacks Rank #2 (Buy).
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