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Deutsche Bank (DB) Continues Revamping, Seals Deal With BNP

Zacks Equity Research

Continuing with its restructuring moves, Deutsche Bank AG DB has entered a deal with BNP Paribas SA BNPQY, per which the former will transfer its prime brokerage business to the latter. The French bank will service Deutsche Bank’s Global Prime Finance and Electronic Equities clients.

However, per the agreement, the platform will remain under the German bank till the migration of clients to BNP Paribas is complete. Moreover, amount of assets, staff and technology to be moved from Deutsche Bank to BNP Paribas are yet to be disclosed as the transition will take several stages.

The deal remains subject to regulatory approvals of the related authorities.

“We are pleased to have signed the master transaction agreement with BNP Paribas on schedule. This is an important milestone for our Capital Release Unit and attests to the strength of our client offering and technology in these products. We are already making progress and are on the right track to implement this transaction, thereby providing a clear path for clients and staff,” said Frank Kuhnke, chief operating officer, Deutsche Bank.

Background

This July, a deal in principle was agreed upon between the two firms as Deutsche Bank’s chief executive officer Christian Sewing was planning to pull back from equities trading, including the prime business serving hedge funds, as a major part of retreat from global investment banking. However, the deal was delayed due to certain reasons, including client departure from the bank’s hedge funds.

Our Take

Following a series of issues with Deutsche Bank, the bank has also faced problems in retaining its hedge-fund clients in recent years. The fund recorded declining balances on retreat of clients from the same.

Therefore, Sewing proposed significant strategic transformation and restructuring plans to improve overall long-term profitability and shareholder returns. Though Deutsche Bank’s restructuring efforts, including cost-saving measures, look encouraging, it is difficult to determine how much the bank will gain, considering the prevalent headwinds. Furthermore, dismal revenue performance is another concern.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

Shares of Deutsche Bank have lost around 2% on the NYSE, year to date, compared with the industry’s growth of 2.8%.


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