The review, which excludes operations of the DWS mutual fund unit in Germany, Europe and Asia, “is focusing in particular on how recent regulatory changes and associated costs and changes in the competitive landscape are impacting the business,” the Frankfurt-based company said yesterday.
Chief Executive Officer Josef Ackermann, who’s leaving in May, built up the asset management and consumer banking units to temper the company’s reliance on investment banking. A sale of the asset management division, excluding those DWS operations, could raise $4.5 billion and improve the bank’s capital position, said Christopher Wheeler, a London-based analyst at Mediobanca SpA.
“They’re looking at how to deal with the capital issue,” said Wheeler, who rates Deutsche Bank “neutral.” “The pressure, I would assume, must be building.” He estimates Deutsche Bank needs to raise 10 billion euros ($13.5 billion) to 15 billion euros of capital to reach the minimum required under Basel III rules, which take full effect in 2019.
As Europe’s sovereign-debt crisis erodes confidence in the financial system, regulators are pushing the region’s biggest banks to increase their capital buffers faster than the Basel rules require. That’s led lenders from BNP Paribas SA (BNP) of Paris to Banco Santander SA of Spain to curb some lending and weigh asset sales to shrink their balance sheets.
Ackermann, speaking at the Hamburg town hall last night, said the world is in a “difficult situation.” His speech was interrupted as about a dozen protesters, including two wearing masks, began singing and then took the stage.
The European Banking Authority estimated last month that the region’s banks need 106 billion euros to reach a 9 percent core Tier 1 capital ratio by mid-2012, after marking their sovereign bonds to market. That includes 5.18 billion euros for German lenders, the EBA said.
Deutsche Bank was told it needs to raise about 1.2 billion euros, two people briefed on the matter said Oct. 28. People familiar with situation said yesterday that the EBA may push German lenders to increase capital by more than previously estimated as the regulator considers revising its criteria.
Christian Streckert, a spokesman for Deutsche Bank, declined to comment on its capital requirements.
Ackermann, 63, abandoned a plan last week to become supervisory board chairman in 2012 because Europe’s debt crisis hasn’t given him the time to win shareholder support. He’ll be replaced as CEO by Anshu Jain, 48, who leads the investment bank, and Juergen Fitschen, 63, the head of Germany. Paul Achleitner, 55, the finance head of Munich-based Allianz SE (ALV), will become chairman.
The decision to review options for asset management may reflect the waning role of Ackermann and increasing influence of Jain, Wheeler said. Kevin Parker, 52, who runs Deutsche Asset Management, “hasn’t made the most of what should have been a fantastic franchise,” Wheeler said. “This is Anshu Jain starting to put his stamp on things.”
Deutsche Bank’s asset management units had 516 billion euros of invested assets at the end of September, compared with 529 billion euros at the end of March, according to a presentation published on Deutsche Bank’s Web site.
The division comprises the DB Advisors unit for institutional clients, with 162 billion euros in assets under management at the end of September; the 157 billion-euro retail asset management unit with the DWS mutual-fund unit; the 46 billion-euro alternative assets unit, which includes the RREEF real estate investment arm; and the Deutsche Insurance Asset Management unit, which oversees 150 billion euros.
The review covers all of the asset management division globally except for DWS in Germany, Europe and Asia, which Deutsche Bank said it has “already determined is a core part of its retail offering in those markets.” DWS has business operations in the Americas which are also part of the review, spokesman Klaus Winker said. He declined to comment on the size of those businesses or on employee figures for the units.
Deutsche Bank’s asset management unit recorded net new money outflows of 12 billion euros in the third quarter. The review doesn’t include any of the wealth management units.
“It’s about time they considered the options for the asset management business,” said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt. “It’s no coincidence that this comes against the backdrop of the EBA stress tests. That’s forcing them to take a look at those assets that they could get a good price for while reducing risk.”
Deutsche Bank said Oct. 25 that it can meet the EBA’s capital threshold by the end of June without measures beyond those scheduled to take effect at the end of 2011.
Germany’s biggest bank won’t need to ask the state for funds, Chief Financial Officer Stefan Krause said on a conference call last month where he presented the analysis, which is based on external analyst estimates for the company’s prospective profits.
The EBA may release details of European banks’ capital needs as soon as next week, said people familiar with the matter, who declined to be identified because the discussions are private. Some aspects of the evaluation are yet to be decided and the EBA will hold meetings of supervisors to discuss them, a European Union official said.