As per Reuters, Germany banking giant Deutsche Bank AG (DB - Free Report) is likely to shut down its brokerage business in Poland, operating as DB Securities S.A. The move is in sync with the bank’s restructuring efforts to fortify its capital position by streamlining operations. In addition, weak performance of Warsaw’s stock market also led to the probable decision.
The domestic stock market has declined nearly 6% in 2016, succeeding a fall of around 20% in 2015. Further, the market turnover decreased to $39 billion in the first 10 months of 2016 versus $225 billion for full-year 2015.
Reuters cited four banking industry sources familiar with the matter. One of the sources noted that the bank might face difficulties during the process as it has to collaborate with the Polish Financial Supervision Authority (KNF). Deutsche Bank has to seek a buyer, which could over take its existing retail clients in Poland.
Further, another source stated that it was Deutsche Bank that initiated price war in brokerage commissions in Poland many years ago, by slashing the commission to nearly half. Also, the source mentioned that the brokerage unit is one of the smaller players in Poland, currently serving nearly 30,000 accounts.
Deutsche Bank has been undertaking several initiatives under its strategy 2020 to improve the overall business performance. Among such initiatives, the company is streamlining its global footprint by offloading unprofitable businesses and shedding non-core assets to free up capital. The bank has been contemplating to sell the whole of Deutsche Bank Polska to ease available capital. (Read more: Deutsche Bank Contemplates Sale of Business in Poland)
Recently, in Sep 2016, the bank inked a deal to sell its Argentine subsidiary – Deutsche Bank S.A – to Banco Comafi S.A. Financial, to reorganize global operations. Also, it signed a deal to sell its UK insurance business, Abbey Life, to Phoenix Life Holdings Limited, to boost its capital position.
Deutsche Bank’s potential exit follows the Katowice-based ING Bank Slaski S.A’s decision to back out from Poland brokerage business. Similarly, among other foreign banks mulling to exit from the nation, General Electric Company (GE - Free Report) entered a deal to sell GE Capital’s major stake in Poland-based Bank BPH’s Core Bank to state-owned lender, Alior Bank.
We expect Deutsche Bank’s top-line growth challenges to ease, as the company is expediting Strategy 2020 efforts. The company is making progress in several areas, including building capital strength, reorganizing its investment banking and retail businesses and further investing in controls and resilience. We believe that gradual achievements in the strategy will support bottom-line expansion going forward.
Deutsche Bank currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Other stocks that warrant a look in the foreign bank space, include Bancolombia S.A. (CIB - Free Report) sporting a Zacks Rank #1 and Banco de Chile (BCH - Free Report) holding a Zacks Rank #2 (Buy). Bancolombia and Banco de Chile have long-term expected EPS growth rate of 2.53% and 5.04%, respectively.
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