By Thomas Atkins
FRANKFURT (Reuters) - Deutsche Bank's supervisory board gathered on Friday to review a sweeping restructuring plan to cut back investment banking and dump the Postbank retail chain to restore profitability.
Another proposal, albeit one that has fallen out of favour with management, calls for Deutsche to exit retail banking entirely, selling both Postbank and its own-branded retail chain and becoming a pure investment and commercial bank.
Either way, cost cuts and layoffs will play a large role as Deutsche withdraws from low-margin financial services and grapples with sweeping changes in the financial industry that have seen European rivals slash their capital-markets activities.
The strategy decision, which may be announced as early as Friday evening, takes place under a cloud after U.S. and British authorities on Thursday imposed a $2.5 billion fine and ordered Deutsche to fire seven employees for alleged benchmark interest- rate rigging.
Accusing Deutsche of "cultural failings", regulators squarely blamed senior staff for misleading them, failing to be open and cooperative, and prolonging the investigation. Twenty-one people face criminal charges.
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The choice to offload only Postbank, which Deutsche bought in steps for around 6 billion euros ($6.5 billion) starting in 2008, is a concession to ratings agencies concerned that a complete exit from retail in favour of investment banking would raise Deutsche's risk profile, financial sources familiar with internal discussions told Reuters at the weekend.
It is also a nod to concerns in Berlin that a total retail exit would see the country's flagship bank lose touch with its home market, where Deutsche Bank serves some 8.5 million retail clients through some 730 branches, the sources said.
By cutting back its retail operations, Deutsche aims to raise capital and retreat from the low-profit battlefield that is German retail banking, dominated by highly competitive savings and cooperative banks.
Deutsche may also streamline itself by selling its 20-percent stake in China's Hua Xia Bank , for which it has already received at least one offer, Reuters has reported.
Severe cost cuts will accompany any solution, including closing up to a third of the group's remaining German branches, financial sources said, in what would represent a dramatic retreat from the high street.
Postbank, which serves 14 million clients from 1,100 branches integrated into the postal system, would be sold via the stock market, placed with a strategic investor or perhaps even with a private equity specialist, financial sources said.
($1 = 0.9189 euros)
(Editing by Philippa Fletcher)