After the planned divestiture of its commodity trading business, Deutsche Bank AG DB is now focusing on revamping its consumer banking operations. The company’s ongoing restructuring plans are directed toward meeting higher capital requirements.
Reportedly, Deutsche Bank’s supervisory board discussed the three main restructuring proposals put forward by management in a meeting held last Friday; all of which zeroed in on transforming the Wall Street giant’s retail arm.
Importantly, the most highlighted and favored proposal was to spin off Deutsche Postbank AG, a subsidiary of Deutsche Bank, and other consumer businesses, into a separate public company. Notably, the company has been long engaged in integrating Postbank into its branch network as part of its cost-cutting efforts. Moreover, the integrated retail chain is expected to be ready for a stock market listing in 2017.
However, Deutsche Bank will have to shed its universal strategy, and simply reduce into an investment and merchant bank, much like its peer, The Goldman Sachs Group, Inc. GS.
While integration of Postbank into the company’s branded branch network was management’s second restructuring proposal, Postbank’s standalone sale formed the third. Further, the company’s shareholders have bid for clarity on the matter (the final decision is due in April) before the next annual meeting scheduled on May 21.
Banks in Europe face stringent regulatory pressure to maintain a healthy capital position in order to resist another financial meltdown. Therefore, we believe such capital raising initiative will help Deutsche Bank meet regulatory requirements, besides improving its competitiveness and strengthening core businesses.
As of Dec 31, 2014, Deutsche Bank’s Common Equity Tier 1 (CET1) capital ratio stood at 11.7%, up from 9.7% as of Dec 31, 2013. Further, leverage ratio, on an adjusted fully loaded basis, was 3.5% as of Dec 31, 2014 compared with 2.4% as of Dec 31, 2013. Moreover, risk-weighted assets were up 12.6% year over year to €394 billion ($478.9 billion) as of Dec 31, 2014.
Currently, Deutsche Bank holds a Zacks Rank #5 (Strong Sell). Some better-ranked foreign banks include ICICI Bank Ltd. IBN and Mitsubishi UFJ Financial Group, Inc. MTU, each carrying a Zacks Rank #2 (Buy).
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