Deutsche Bank May Need to Shrink U.S. Activities, Welt Says

  • Changes to business model typical in settlements, Welt says
  • Deutsche Bank employs about 10,000 people in North America

The Deutsche Bank skyscraper headquarter offices in Frankfurt.

Photographer: Jasper Juinen/Bloomberg

Deutsche Bank AG may be forced to shrink its U.S. activities as part of a deal to settle litigation over residential mortgage-backed securities with the Department of Justice, German newspaper Welt am Sonntag reported, citing an unidentified person familiar with the discussions.

Radical changes to the business model are typical requirements in settlement arrangements with the U.S. government, Die Welt cited the person as saying. Deutsche Bank “must clarify one or two things” before an agreement can be struck, the person said, according to the report. Germany’s largest bank will probably give up part of its U.S. investment banking business, the newspaper cited unidentified people in the banking industry as saying.

Deutsche Bank spokesman Armin Niedermeier declined to comment on the report when contacted by Bloomberg on Saturday.

The shares closed at 12.24 euros on Friday, up 2.04 percent on the day. The company has lost about 46 percent of its market value this year, making it the fourth-worst performer on the Bloomberg Europe Banks and Financial Services Index, which slipped 22 percent.

A U.S. pullback is among options that were discussed by the supervisory board and would be more likely than a sale of the asset-management business, German daily Sueddeutsche Zeitung reported Friday, citing an unnamed person familiar with the matter. Renee Calabro, a spokeswoman for Deutsche Bank in New York, declined to comment on the Sueddeutsche Zeitung report.

Deutsche Bank had 10,842 employees in North America at the end of 2015, about 10 percent of the 101,104 it employs worldwide. Under Chief Executive Officer John Cryan’s restructuring plans announced last year, the lender is seeking to eliminate 9,000 jobs, including 4,000 positions in its home market.

Cryan has struggled to restore investor confidence as mounting legal expenses raised concern about the lender’s financial strength. A sell-off in the shares accelerated last month, when the U.S. Justice Department requested $14 billion to settle a probe tied to residential mortgage-backed securities.

The CEO responded by saying he expects U.S. authorities to scale back their initial demand and that he doesn’t plan to raise capital as he focuses on restructuring the bank. To help lower costs and boost profitability, Cryan has suspended dividends, cut risky assets and scrapped bonus awards.

In a message to divisional chief operating officers on Wednesday, Deutsche Bank said hiring will be put on hold with immediate effect, people familiar with the matter told Bloomberg. The hiring freeze affects all divisions excluding some control functions such as compliance, the people have said.

Deutsche Bank, which houses Europe’s largest investment bank, is also holding information talks with securities firms to explore options including raising capital should mounting legal bills require it, people familiar with the matter have said. The lender would also revisit selling its Deutsche Postbank consumer unit or parts or all of its asset-management division, they said.

The lender is scheduled to release third-quarter earnings on Oct. 27.

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