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Deutsche Bank Reviews Capital Raising as Option for Overhaul

Company aims to slash the capital allocated to trading unit.

Deutsche Bank Reviews Capital Raising as Option for Overhaul
Deutsche Bank AG logos sit inside a glass display case outside a bank branch in Berlin, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

(Bloomberg) -- Deutsche Bank AG is considering options including a capital increase as part of a wider overhaul it plans to unveil in the next two months, people with knowledge of the matter said.

Tapping investors for fresh cash is the least favored option because management is aware that it could trigger a backlash in light of Deutsche Bank’s low stock price, said the people, who asked not to be identified in discussing ongoing deliberations. Still, the bank hasn’t taken the option off the table as it may be needed to fund substantial cuts to the investment bank.

The restructuring plans being explored aim to significantly cut the trading business, resulting in tens of billions of euros in risk-weighted assets being removed from the division’s balance sheet and placed in a separate unit to be wound down, the people said. The move could require the bank to come up with capital to fund the new non-core unit, they said.

Chief Executive Christian Sewing has signaled deeper cuts as Germany’s largest lender struggles to make a profit, deeply frustrating shareholders who have seen the stock fall to a record low. The investment banking division, run by Garth Ritchie, has long been one of the biggest headaches for Sewing, whose previous attempts to lift profitability at the unit have largely foundered.

A spokesman for Deutsche Bank declined to comment.

Deutsche Bank Reviews Capital Raising as Option for Overhaul

Deutsche Bank pared gains on the news, trading 0.8% higher at 1:54 p.m. in Frankfurt after rising as much as 2.3% earlier. The stock hit a record low last week.

The lender has raised almost 30 billion euros ($34 billion) in four capital increases over the past decade. The last time it tapped shareholders was in 2017, when it got 8 billion euros under then-CEO John Cryan.

Sewing said last week he won’t shy away from “tough cuts” to the investment bank, without specifying where they would occur. He singled out areas that are performing well and therefore are likely to be exempted, such as origination and advisory as well as foreign exchange, global credit trading and U.S. commercial real estate. He didn’t mention the equities business and interest rates trading, suggesting cuts there are probable.

The bank has been working on a Plan B for some time to present to investors after the collapse of merger talks with Commerzbank AG. Sewing has considered options including accelerated cost cuts as well as a more comprehensive strategic revamp that would result in upfront restructuring costs, Bloomberg reported in April.

Deutsche Bank Reviews Capital Raising as Option for Overhaul

The new strategy will likely also include the departure of several management board members, the people said. Reports by Die Welt and Manager Magazin have singled out investment banking head Garth Ritchie and Chief Regulatory Officer Sylvie Matherat as executives who are likely to leave the bank, and the two received the lowest shareholder approval at the bank’s annual general meeting on Thursday.

Deutsche Bank’s investment banking division had 228 billion euros of risk-weighted assets on its books at the end of the first quarter, or roughly two thirds of the lender’s total. The Wall Street Journal previously reported on Deutsche Bank’s plan to set up a non-core unit.

The bank last created a non-core unit in 2012 under then-CEO Anshu Jain with 125 billion euros of risk-weighted assets. It took the bank about four years to wind it down, creating more than 11 billion euros in pretax losses for the unit over that period.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net

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

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