The German lender has offloaded US$50 billion of unwanted assets to Goldman Sachs as part of the restructuring of the investment banking balance sheet.
Deutsche has sold ‘unwanted’ emerging-market debt securities worth US$50 billion in notional held in the bank’s capital release unit (CRU) to Goldman Sachs, SRP has confirmed.
Goldman Sachs acquired Deutsche Bank’s Asian equity derivatives portfolio in September while Barclays and Morgan Stanley took over the European and US trading books, respectively. The German bank also transferred its global prime finance to BNP Paribas, and dismantled its Jaguar equities strats platform and the quantitative investment strategies (QIS) team, in September.
A person with knowledge of the bank’s restructuring told SRP the move is part of the winding up and selling of assets within the CRU, which was announced at the beginning of July.
“This involves the offloading of some long and complicated trades and it is aimed at streamlining the bank’s balance sheet,” said the source. “The bank has not completely exited the structured products market as it continues to operate the Xmarkets platform which includes structured warrants, certificates and notes”.
“[Xmarkets] continues to serve institutional and public distribution clients,” said the source, adding, "[the platform] continues to offers private and professional investors access to our product development, trading and risk management expertise".
Deutsche’s X-markets is well established on a number of European markets especially in Germany and France, and is “also used in other market by online brokers to purchase certificates, structured notes, funds and warrants"..
“There’s been some circulation around the future of the business but no decision has been made,” said the source. “The structured products team is currently doing short-dated products and fairly vanilla trades in anticipation of any changes. The equity derivatives portfolio has been sold and there will be other assets which will also be offloaded and this could include structured products.”
At the end of this year’s third quarter, Deutsche said it wanted to reduce to US$119 billion the US$195 billion in leverage exposure held in the bank’s CRU by the end of 2019. Deutsche’s CRU is different to traditional ‘bad banks’ used to offload ‘toxic assets’ and includes equity derivatives, cash equities as well as interest-rate trades.
Market share
Deutsche Bank’s equity-derivatives business has struggled over the last few years despite being one of the top European manufacturers of structured products (105,971 issuances marketed across Europe YTD worth an estimated US$1.2 billion) and a top 10 provider in Germany (138,352 products worth US$649.7m in 2018/ 130,268 products worth US$464.7m YTD).
As part of the restructuring, the German bank has moved US$316 billion euros of assets into the CRU of which equities, including equity derivatives, accounted for around US$186 billion of those assets. Fixed-income assets, including long-dated interest rate and credit derivatives, accounted for US$86 billion. The German bank’s auction includes its flow equity derivatives as well as its exotic derivatives book. Other assets being sold include, hybrids, corporate, convertibles and QIS.
Deutsche Bank reshuffled its equities division over the last year to 'reinforce clear lines of accountability across products and regions'.