Deutsche Bank to draw a line under past problems

German banking giant Deutsche Bank is rumoured to be on the verge of an €8 billion capital injection to strengthen the company’s balance sheet. This will also free funds for an array of strategic investments after years of fighting fires through the courts. Those close to the company believe that a deal has already been agreed in principle which could see part of the company’s asset management division floated off via an IPO. So, how does Deutsche Bank plan to draw a line under historic problems?

Deutsche Bank is not alone

There is no doubt that the company will take centre stage over the coming days and weeks although the issues it has encountered have also been replicated across the industry. A further €4.7 billion have been earmarked for litigation in relation to toxic mortgages and so-called sham Russian trades. There may be an array of new civil actions to follow but at this moment in time the company does have a definitive settlement in mind.

Deutsche Bank ready to rebuild itself.
Deutsche Bank to draw a line under past problems

Due to the structure of Deutsche Bank any deal will need to be agreed by the company’s management and supervisory boards. Officially no deal has been agreed but those close to the issue suggest it will be announced fairly soon. This could also see the company integrate a number of investments such as the Postbank into its German retail business. Whenever happens, the Deutsche Bank of yesteryear will look very different in the future and investors can only hope that lessons have been learned.

The asset management division

The asset management division of Deutsche Bank has been put forward by many parties in the past as a way to raise money to repair the company’s balance sheet. The division is provisionally valued at around €8 billion and an issue of shares to the public via an IPO would raise much-needed capital. While many might have expected this particular division to be cherry picked by competitors, as we mentioned above, the issues facing Deutsche Bank have also impacted the capital strength of other banking groups.

If Deutsche Bank was to go ahead with the suggested changes we may see other companies stepping forward to rearrange their own balance sheets. The banking industry in Europe has been decimated by the economic downturn which began in 2008. Many banks were effectively bailed out by government funding and trading issues such as toxic mortgages and so-called sham Russian deals weakened the sector even more.

Corporate activity

It does seem inevitable that over the next few years we will see significant corporate activity across both the European and the worldwide banking sector. Governments around the world are determined to avert a repeat of the 2008 downturn which literally brought the worldwide economy to its knees. This will inevitably mean stronger capital ratios, greater regulation and we could in certain circumstances see banking and corporate operations detached from each other.

The future of the European Union is also a hot topic as the UK authorities ready themselves to pull the trigger on Article 50 which will begin the “divorce” process. As the sides jockey for position there are concerns that the financial consequences of the separation will get extremely messy and could be prolonged.

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