How Deutsche's big bet on Wall Street turned toxic

Fri Dec 23, 2016 6:17am EST
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By Edward Taylor

FRANKFURT (Reuters) - Deutsche Bank's pursuit of success on Wall Street has come at a high price, a $7 billion plus penalty illustrating the extent of its decline since 2008 when its then chief executive claimed it was one of the "strongest banks in the world".

Expanding from its roots in Germany dating back to 1870, Deutsche (DBKGn.DE: Quote) transformed itself into a major player on Wall Street over the past two decades, often taking extravagant bets to do so.

But it is now set to cut back its activities in the world's biggest economy after a penalty for the sale of toxic mortgage securities that contributed to the biggest economic crash in a generation.

"The strategic options open to Deutsche Bank in the U.S.A. are clearly restricted because the profitability of the business will be weakened," said Ingo Speich, a fund manager at Union Investment, a shareholder in Deutsche.

German regulators also want Deutsche, the country's largest bank which employs around 100,000 people around the world, to rein itself in.

"Size in itself is no sign of success," said one senior official in Germany, where the mood among regulators has hardened towards the bank. "They now want to curtail their ambitions."

Last year, the bank's U.S. arm, where roughly one in ten of its staff are based, racked up a loss of 2.8 billion euros ($2.9 billion) - almost half the total loss made by the group.

That was a swing from a profit of more than 1 billion euros in the previous year. Much of the damage was done by a writedown on the value of Bankers Trust, while tighter regulation has made it more expensive to trade.   Continued...

A statue is pictured next to the logo of Germany's Deutsche Bank in Frankfurt, Germany September 30, 2016. REUTERS/Kai Pfaffenbach/File Photo