Deutsche Bank Adds Assets For Sale In Its Bad Bank
The logo of Deutsche Bank is pictured in London, Britain July 8, 2019.

(Photo: REUTERS/Simon Dawson)

Some of the senior officials of Deutsche Bank talked about putting more problematic billions of euros worth of assets into its bad bank with hopes of selling them as new CEO tries to reshape financial institution by concentrating more on profitable assets.

Sources said that such act of adding assets into its capital release unit (CRU) or bad bank is not something to surely happen, while a Deutsche Bank spokesman shut down that possibility flat out saying there are no plans at all.

Still, adding assets to its bad bank is one of the options everyone is sure to come up with as the bank's executives struggle to turn the bank around on a tight budget.

On April 8, 2018, Christian Sewing became CEO of Deutsche Bank taking over from John Cryan.

Sewing is now working on reshaping the bank.

He started Deutsche Bank's transformation not only by continuing allocation of capital, providing credit and redistributing financial risk but also by setting up a bad bank or capital release unit to hold 74 billion euros of assets identified as risk-weighted.

In the case of Deutsche Bank, it will rid the bank of long-dated derivatives as it slowly focuses its operations on more profitable assets.

The bank has 7.4 billion euro set aside for this restructuring.

The 17th largest bank in the world by total assets as of April 2018, Deutsche Bank needs more capital to cushion the losses that will come from getting rid of problematic assets that are still on its books.

Speculation on the bank's problems started when it was announced on July 7 of this year that 18,000 jobs, a fifth of Deutsche Bank's global staff, is going to get slashed from its operations.

Though some may speculate that the bank's troubles were the result of bad execution, bad luck or bad strategy or all three, it should be noted that there is great transformation happening in the financial industry and investment banking is not immune to these.

Over the past nine years, Deutsche Bank raised 29.3 billion euros ($32.3 billion) in the capital and cannot ask investors for more especially when they're still reeling from the disappointment of a 75% fall in the bank's share price that happened within four-and-a-half years.

Analysts are concerned about Deutsche Bank's moves of choosing the assets it puts in its CRU because it still has Level 3 assets, valued at 18 billion euros, the most illiquid and hard-to-value.

David Hendler, an independent analyst at New York-based Viola Risk Advisors think the bad bank is just "a partial clean-up."  

However, Deutsche Bank clarified that the CRU's are not ring-fencing toxic assets but purely selecting assets for releasing capital.

Sewing said these assets are "high quality."

In fact, Barclays, Goldman and Morgan Stanley are now owners of such assets.