Deutsche Bank announces review of asset management business

Deutsche Bank has announced a strategic review of its global asset management division, sparking expectations Germany’s biggest bank could eventually put the unit up for sale.

The review excludes the Frankfurt-headquartered DWS mutual fund business, but includes all of the asset management division globally. DWS’s franchise in Germany, Europe and Asia, the bank said, was “a core part of its retail offering in those markets”.

It is believed it also excludes the wealth management operations.

Deutsche’s asset management unit took in €12bn of net new money last quarter, and units such as institutional arm DB Advisors have been aggressively growing franchises such as money market fund management.

In a statement the bank said it “remains committed to asset management [and] this review is part of the bank’s continual effort to maintain an optimal business mix, and be among the market leaders in each of its businesses”.

It did not give a time horizon for the review of the €516bn operations, but said regulatory and competitive changes in the industry generally, and how these might affect growth prospects for the operations, were reasons for the review.

Kevin Parker, global head of asset management, said: “The outcome of this review will be driven first and foremost by our fiduciary duty to, and the interests of, our clients. Our aim is to find the best strategic option to maximize the performance and potential of the asset management division.”

If the review ends in a sale, it will come in an increasingly crowded auction room – stressed bank Dexia said last month it was selling its asset management unit as part of a restructuring, and troubled German regional banks that have not yet offloaded their operations might add theirs to the mix, too.

Some analysts said sale of the Deutsche operations, excluding the ring-fenced DWS unit, could raise up to $4.5bn.

While Deutsche Bank is widely seen as the least harshly hit German bank from the last financial crisis, all its industry are looking at ways to raise capital to meet reserve ratios under Basel III, and more recently eurozone leaders’ announcements.

As eurozone leaders enforced a 9% core Tier 1 ratio on the bloc’s banks by mid-2012, the European Banking Authority calculated this would require €106bn in asset raising.

Core tier 1 capital includes ordinary shares, retained earnings and reserves. Basel III requires banks keep a ratio, versus their total risk-weighted assets, of 4.5% by 2015, plus a 2.5% extra buffer.

Deutsche Bank would only need to raise about €1.2bn to meet targets, analysts say. More than half of the €5.2bn needed by German banks would be required by Commerzbank, said Credit Suisse analysts late last month.

Deutsche’s move comes as some investors turn mildly positive on European bank valuations. Barclays Wealth noted last week shares in French, German and British banks trade at between 0.5 and 0.7 times book value.

“The majority of European banks are now trading below their tangible book value. Somewhat simlpistically this implies investors don’t trust the suggested value of the banks’ net assets,” the UK wealth manager added.

“Given the substantial write-downs digested over the past few years and relatively strong underlying businesses [this] may suggest some value in the shares.”

But don’t buy yet, Barclays Wealth adds.

“Some of the the mistrust of book values is understandable. European peripheral bond markets remain in disarray, [and are] have been considered low- oe even no-risk investments, thus staples of European bank balance sheets.

“One can begin to see why banks are priced at or below the net value of their assetrs. In our opinion it remains too early to take advantage of these lowly valuations. We still need to see extensive detail around a credible and sustained backstop in the euro area. Until then, bank stocks are likely to remain the most volatile element in already volatile equity markets.”


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