By Thomas Atkins
FRANKFURT (Reuters) - Deutsche Bank
Germany's biggest lender ended four months of deliberations on its future saying it would pull back from some countries but invest in some operating divisions including transaction banking, asset and wealth management, and its own-branded retail businesses.
The group's supervisory board unanimously supported the strategic proposal, which represents a shift from the global group's previous efforts to maintain a "universal" platform offering everything from derivatives to mortgages.
Deutsche said it wished "to remain a leading global bank based in Germany".
Splitting Postbank but keeping the group's own-branded retail chain means Deutsche management chose the less radical of two restructuring models. Under a more dramatic plan previously considered, Deutsche weighed leaving retail finance entirely and becoming a pure investment and commercial bank.
Cost cuts, which are likely to include layoffs, will play a large role as Deutsche withdraws from low-margin services and grapples with sweeping changes in the financial industry that have seen most of its European rivals like UBS
"It's a very difficult and complex path," said Omar Fall, equity analyst at investment bank Jefferies. "But at least they're being proactive about doing something about the structure of the business, which is different from the past, when they would just raise new capital and say 'trust me it'll be different this time.'"
The decision comes at a tumultuous time for co-chief executives Juergen Fitschen and Anshu Jain.
U.S. and British regulators fined Deutsche a record $2.5 billion on Thursday for trying to manipulate benchmark interest rates. The bank has said that neither Jain, who was running the investment bank at the centre of the scandal, nor other management board members were found to have been involved or aware of the trader misconduct.
Fitschen, meanwhile, will stand trial on Tuesday in Munich over allegations that he and other former executives worked to precipitate the collapse of the Kirch media empire in order to generate bountiful advisory fees to restructure the group.
Fitschen has said publicly that he "neither lied nor deceived" in the Kirch case.
ABOUT FACE
Friday's plan marks a strategic about-face for the two men, who until recently were trumpeting Deutsche as Europe's "last man standing" in investment banking and vowing to vacuum up capital markets business left by retreating rivals.
But with tough new regulations and weak markets eating into their returns and their shares out of favour with investors who prefer more streamlined competitors, they had to act.
Since the two took charge in 2012, Deutsche shares have climbed only 22 percent, well below the 84 percent gain for the Stoxx European Banks index <.SX7P>. Hopes for a restructuring have caused Deutsche shares to rally in recent weeks.
As part of the overhaul, details of which will be unveiled on Monday, Deutsche will cut back parts of its investment banking operations. Analysts say that is likely to include reducing its repo business and its prime brokerage division, which provides loans and other services to hedge funds.
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.
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 own-branded branches.
But the plan has its critics. "Selling Postbank is quite likely to exacerbate Deutsche Bank's problems," wrote analysts at Societe Generale in a recent note. Deutsche will likely incur a loss on the sale. Its funding costs will also likely rise as bond investors worry about the loss of earnings diversification in the group, SocGen wrote.
(Editing by Philippa Fletcher, Carmel Crimmins and Maria Sheahan)
