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Deutsche Continues Overhauling, Sells Bad Assets to Goldman

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Per Reuters, Deutsche Bank AG (DB - Free Report) has come up with the sale of unwanted assets worth $50 billion to Goldman Sachs (GS - Free Report) , continuing with its overhauling moves for reviving profitability. The move is part of the bank’s overhaul of emerging-market debt holdings.

Part of the company’s restructuring moves included creation of a new Capital Release Unit, also called a bad bank. This ensures smooth winding down of assets related to businesses from which the bank plans to exit in the near term. Therefore, the latest move of vending assets to Goldman was included in the series of winding down of such assets.

Notably, the bad bank holds assets worth 177 billion euros ($195 billion) in leverage exposure as of Sep 30, 2019. The bank targets to reduce the exposure to 119 billion euros by the end of this year. The unit holds mainly derivatives and emerging-market debt.

Per Deutsche Bank, portions of equity derivatives have been sold in three auctions. Further, the bank’s plans include selling off more complex equity derivatives over a couple of years.

“DBK’s structural challenges, as we see them, fall into three categories: the absence of a high-return platform, elevated funding costs and uncertainty around the scope of its IB business,” Goldman Sachs said in a statement on Deutsche's restructuring efforts.

Deutsche Bank has also entered into a deal with BNP Paribas SA (BNPQY - Free Report) this September, per which the former will transfer its prime brokerage business to the latter. The French bank will service Deutsche Bank’s Global Prime Finance and Electronic Equities clients.

However, per the agreement, the platform will remain under the German bank till the migration of clients to BNP Paribas is complete. Moreover, amount of assets, staff and technology to be moved from Deutsche Bank to BNP Paribas are yet to be disclosed as the transition will take place in several stages.

Though Deutsche Bank’s restructuring efforts, including cost-saving measures, look encouraging, it is difficult to determine how much the bank will gain, considering the prevalent headwinds. Furthermore, dismal revenue performance is another concern.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

Shares of Deutsche Bank have lost around 9.7% on the NYSE, year to date, as against the industry’s growth of 3.8%.



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