Germany Pressures Deutsche Bank to Speed Overhaul

  • Bank needs to settle U.S. probe and refocus, CDU’s Fuchs says
  • Government sees pressure for Cryan to shift business model

Goldman's Swell Sees Opportunities in Deutsche Bank

Germany wants to see a swift settlement between Deutsche Bank AG and the U.S. government over a fine for mortgage-backed securities so the bank can focus on reshaping its business model, according to officials in Chancellor Angela Merkel’s administration.

Germany’s biggest bank needs to press ahead with measures such as job cuts, a shift to online banking and branch closures as part of a strategy that allows the nation’s banks to weather regulatory changes and low interest rates, one official said. Settling the U.S. case would create the breathing space to advance the process, another official said. Both asked not to be identified because they aren’t authorized to speak to the media. The German Finance Ministry declined to comment.

“Once Deutsche Bank has settled with the Americans, it can once again concentrate on its tasks at hand,” Michael Fuchs, deputy parliamentary leader for Merkel’s Christian Democratic-led bloc, said in an interview. Consolidation is under way and “the bank’s management needs time” to fix mistakes made over “10 years or more,” he said.

While Merkel’s government says it isn’t intervening to lower the proposed $14 billion (12.7 billion-euro) fine in Deutsche Bank’s negotiations with the U.S. Justice Department, the comments reflect concern in Berlin that the Frankfurt-based bank may be moving too slowly to restore confidence after the company’s stock fell to a record low in September.

As the government keeps its distance in public, saying the bank’s troubles are a matter for its board to resolve, election-year politics give officials an added incentive to prod Deutsche Bank to clean house.

Germany’s market regulator, known as Bafin, is adding to the pressure for banking reforms. Felix Hufeld, the agency’s head, said supervisors are monitoring whether German banks are “scrutinizing their business models.” In a low-rate environment, institutions can’t keep relying on net interest income “and cost-income ratios must go down in Germany significantly,” he said in a speech last month in Berlin.

Deutsche Bank Chief Executive Officer John Cryan has called 2016 a peak restructuring year as he works to eliminate thousands of jobs and cuts risky assets in a bid to win back the approval of regulators and investors. Talks between Deutsche Bank and the Justice Department are continuing after discussions in Washington last week failed to produce a settlement, according to people familiar with the situation. Cryan has said he expects the U.S. to scale back the initial request.

The bank, which set aside 5.5 billion euros for litigation at the end of June, may face additional penalties in other investigations, including a money-laundering inquiry tied to its Russia operations. Analysts at Barclays Plc speculate that could cost Deutsche Bank as much as 2 billion euros.

Cryan has sought for the past three weeks to reassure investors that Deutsche Bank can weather the litigation. The bank is holding informal talks with Wall Street firms about options to deal with legal costs, including a stock sale that could raise 5 billion euros, people with knowledge of the matter said last week. Qatar’s royal family is considering increasing its stake in Deutsche Bank to as much as 25 percent, according to people with knowledge of the matter.

While Merkel’s government says it doesn’t have a rescue plan, that hasn’t quelled concern among some German politicians who say Deutsche Bank, which runs Europe’s biggest investment bank and has half of its 101,000 employees in Germany, needs to be pared.

“The too-big-to-fail risk isn’t resolved,” said Gerhard Schick, a member of the German parliament’s finance committee for the opposition Greens party. “That bank still is too big and when you look at the risks on its books, it’s undercapitalized.”

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