Deutsche Bank confirmed the news that it is in talks with BNP Paribas on the sale of its prime brokerage business, which provides trading and other services for hedge funds, but the deal is still at a preliminary stage.
The news came as Germany’s largest lender is talking with potential buyers for a wide range of its assets amid wider cuts at its US equities business, including prime brokerage and equity derivatives, part of its most dramatic overhaul in recent history.
The proposed financial terms of the deal were not disclosed. Although Deutsche Bank’s unit is ranked in the top 10 largest prime brokers globally, the business contracted recently, with investors pulling $1 billion in assets since its CEO announced “tough cutbacks” at its investment bank.
That trend continued into July, MarketWatch reports, with funds seeing further redemptions.
Deutsche Bank said earlier this month that is gearing up to cut hundreds of jobs in its equities trading and research, as well as derivatives trading, as part of a cost-cutting drive. The German lender plans to eliminate as many as 18,000 jobs, joining a growing list of global banks that have announced multiple jobs reduction rounds this year.
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US banks return to the area
Germany’s biggest bank also faces pressure from investors to push ahead with further cost cuts this year and pull out of businesses where it isn’t profitable, especially after the collapse of merger talks with Commerzbank.
The bank has also been shuffling around major executives in the last few months. A number of key executives have exited the bank, including its head of foreign exchange for its Europe, Middle East, and Africa (EMEA) business.
Prime brokers came under scrutiny during the financial crisis as their capital-intensive business inflates balance sheets since they finance their clients’ transactions by extending credit.
The increase in banking regulation, which mandates increased minimum levels of capital and increases in reporting expenses, has resulted in a lot of banks leaving the prime broking space.
However, BNY Mellon and some other US banks are returning to the area after they were forced earlier to clean up their balance sheets.