Deutsche Bank looking to cut back U.S. mortgage securitization: sources

Fri Nov 18, 2016 9:03am EST
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By Arno Schuetze, Kathrin Jones and Mariana Ionova

FRANKFURT/LONDON (Reuters) - Deutsche Bank is looking to cut its loan securitization business further starting with repackaged U.S. mortgages, two people familiar with the matter said, as the lender braces for a large fine in the United States for alleged mis-selling of such debt.

A final decision about this core business is set to come early next year, the people said, and securitization cutbacks could become a central part of an expected strategic overhaul at the bank, once U.S. authorities have settled on a penalty.

As well as rolling back the repackaging and resale of U.S. mortgages, European car loan securitization and other areas may also be cut, the people said, adding that management were still debating the scale of the reductions.

"We have already shrunk the business over the last two to three years," a person with direct knowledge of the bank's plans said. "It could shrink a lot more. Not only sales and trading, but also in origination."

Such a move would mark a retreat from a core business that helped Deutsche become one of the most dominant investment banks in the world before the financial crash. Now, the International Monetary Fund considers it a big risk to the financial system.

Deutsche Bank declined to comment.

Germany's flagship lender is among the top six investment banks globally in securitization, according to research group Coalition. The asset-backed Securities (ABS) market in the United States alone was worth almost $2 trillion in 2015.

But tougher regulation following the financial crash has made it more expensive for banks to trade such complex securities as they tie up more capital.   Continued...

Germany's Deutsche Bank headquarters are pictured in Frankfurt, Germany, October 5, 2016.   REUTERS/Kai Pfaffenbach