Deutsche Bank sells $50 bn of bad assets to Goldman amid restructuring: report
29 November 2019
German banking giant Deutsche Bank is reported to have sold $50 billion in low-profile assets to Goldman Sachs as part of a restructuring exercise involving 177 billion euros ($195 billion).
A Reuters report citing people familiar with the matter said these assets related to emerging-market debt, as reported earlier by Bloomberg.
Deutsche, according to the reports, has hived off billions in assets into a so-called capital release unit (called a bad bank). The unit contained 177 billion euros ($195 billion) in leverage exposure at the end of the third quarter.
The bank aims to reduce that to 119 billion euros by the end of this year, the reports said.
It is unclear how much the sale to Goldman chips away at that goal because the nominal $50 billion is not comparable to leverage exposure, a measure of risk.
Goldman is reported to have purchased the debt, which includes derivatives, as well as emerging-market debt, at a deep discount and hopes to make a profit on the deal.
Deutsche has said it sold packets of equity derivatives in three auctions. It is now trying to sell more complex equity derivatives, a process that will take a couple of years.
Deutsche has also struck a deal to transfer its prime brokerage business to BNP Paribas.
“Despite having launched the most comprehensive restructuring of our bank in two decades, we delivered profits in our four core businesses during the quarter and grew loans and assets under management. Transformation is fully underway with tangible progress on costs and de-risking. A 13.4 per cent CET1 ratio underlines our strength. I want to thank our employees for their strong performance and commitment during this period of change, and our clients for the strong vote of confidence in our new strategy," Christian Sewing, chief executive of the bank, said.
As a result of strategic adjustments and in line with expectations, Duetsche Group reported a net loss of 832 million euros and pre-tax loss of 687 million euros.
Core banking operations, which exclude the capital release unit, made a pre-tax profit of 353 million euros after absorbing 315 million euros of specific revenue items¹, restructuring and severance and transformation-related charges.
Capital Release Unit reported pre-tax loss of 1.0 billion euros, driven by the exit of non-strategic business and transformation costs, Duetsche said, adding that its common equity Tier 1 ratio is stable at 13.4 per cent.
The bank said it is on track to meet 2019 cost reduction targets after seventh consecutive quarter of year-on-year reduction in adjusted costs after transformation charges and bank levies.
Deutsche Bank said it has made significant progress with its restructuring in line with key targets which management announced in July. This included de-risking, cost reduction and growth in business volumes.
As a result of these restructuring efforts, Deutsche Bank reported a net loss of 832 million euros and a loss before tax of 687 million euros in the third quarter of 2019. Results in the quarter included valuation adjustments on deferred tax assets (DTA) of 380 million euros, in line with expectations, as part of strategy execution.