Deutsche Bank Now Wants to Keep Some Equities Revenue After All

(Bloomberg) -- Deutsche Bank AG finds parting with its equities business is harder than expected.

The German lender, which not even three weeks ago announced it was exiting equities trading except for a “targeted” sales force and research, flustered analysts on Wednesday after moving 550 million euros ($613 million) in revenue back to the investment bank from the wind-down unit it had just set up. The change of heart will force the bank to adjust some forecasts but won’t affect risk-weighted assets at the capital release unit, or CRU.

The change, in the footnote of a presentation, left Chief Financial Officer James von Moltke facing tough questions.

“What is this business, if it’s 550 million euros of revenues, with no risk-weighted assets, no leverage assets, no costs?” asked Stuart Graham, an analyst at Autonomous Research. “That sounds like a fantastic business, why was it ever in the CRU?”

It wasn’t the only explaining von Moltke had to do. The CFO earlier conceded that the recent reversal in interest rate expectations had caught the lender by surprise and could weigh on revenue. Shares of Germany’s largest bank slumped, with investors pondering the headwinds for the company as it embarks on the biggest cutbacks yet to its battered investment bank.

The decision to keep a bigger equities business, von Moltke explained, reflected input from the new management team and concerned services the bank provides to corporations. The additional revenue will provide a “slightly better starting point” to reach the trading unit’s revenue goal, he said.

“Think of share repurchase programs, selective margin lending and our view that we can continue or management’s view that we can continue potentially on a white label basis,” von Moltke said. “Another change is to see the listed derivatives business, there was some support” from that business for the fixed income operation, so that was moved back to the investment bank.

The change, Chief Executive Officer Christian Sewing said on the same call, “is no watering down of either our strategy decisions in terms of the equity sales and trading exit.” It simply seeks to avoid “giving up more in revenue at the coherence of our service offering than is absolutely necessary,” he said.

--With assistance from Donal Griffin.

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

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