Exclusive: Deutsche's radical revamp foiled by ECB stress test

Mon Apr 27, 2015 6:43pm EDT
 
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By Thomas Atkins and Kathrin Jones

FRANKFURT (Reuters) - A radical plan for Deutsche Bank (DBKGn.DE: Quote) to become a pure investment bank and corporate lender was dropped after stress tests demanded by the European Central Bank concluded the model would not withstand a severe financial crisis, sources said. 

Deutsche Bank, Germany's biggest lender, has spent much of this year looking at ways of reconfiguring its business to boost returns and had narrowed the choice to two possible models.

The bank's co-chief executives, Anshu Jain and Juergen Fitschen, originally favored shedding its entire retail business and becoming Europe's answer to Goldman Sachs (GS.N: Quote), sources familiar with internal discussions told Reuters.

But they and other decision-makers later changed their view in the wake of the stress tests and a raft of demands by trade unions and political interests in Berlin. The bank instead chose a less ambitious solution, selling only its Postbank DPPBGn.DE retail arm, cutting investment bank assets and investing more in equities trading and wealth management.

During Deutsche Bank's strategic review, the ECB, directly responsible for supervising the lender since the euro zone centralized banking oversight last year, asked it to test different structures to see if they could withstand a crisis.

Stripped of its retail arm's rich seam of deposits, the proposal - codenamed Model 5 during the process - failed because its funding dried up and its cost of capital rose in the stressed scenario, the sources familiar with the process said.

The result was that Model 5, which was already opposed by a trade union fearing mass layoffs and politicians who instinctively disliked the idea of Germany's flagship bank abandoning its retail customers, was no longer viable.

The ECB declined to comment.   Continued...

 
Anshu Jain (R) and Juergen Fitschen, co-CEOs of Deutsche Bank, speak at a news conference in Frankfurt, Germany, April 27, 2015. REUTERS/Kai Pfaffenbach