The European Central Bank has asked Deutsche Bank to estimate the costs of winding down the trading operations of its investment bank, the first such simulation by one of Europe's biggest banks, Deutsche's finance chief said on Monday.
But Chief Financial Officer James von Moltke said the ECB's request was not an unusual exercise and that it was totally unrelated to Deutsche's internal review of its global investment bank. "We think we are first in the queue here because we are the largest capital markets bank in the ECB's supervision," von Moltke said in an interview with Reuters.
The timing of the simulation is sensitive because Deutsche Bank's investment banking division has been losing market share and key staff, contributing to three consecutive years of losses at Germany's largest lender. Last week, Deutsche ousted its chief executive John Cryan and Marcus Schenck, one of the heads of the investment bank, also left. The management upheaval has added to speculation that Deutsche Bank might slim down its sprawling investment banking operation.
An ECB spokeswoman declined to comment on individual banks. "There are in general various exercises such as recovery plans which the supervisor asks banks to provide," she said. "In any case, the ECB does not intervene in any business model decision of banks." Deutsche Bank, by talking publicly about normally private supervisory exercises, wants to avoid the impression that regulators are worried about the investment bank.
The bank has stabilised since late 2016, when speculation mounted that it would need a government bailout in the wake of huge fines from US authorities. Global regulators are working on unified procedures for such exercises like the one that Deutsche is conducting. Regulators are primarily focused on big global banks that trade risky securities like derivatives.
The regulators have categorised some banks as "sytemically important" because of their size. They have identified Deutsche Bank as the most systemically important bank in the euro zone. Regulators in Britain have already conducted a similar simulation with Deutsche's London-based arm.
The exercise can shed light on whether a sudden halt of trading activities would require government guarantees or support from taxpayers, the Sueddeutsche Zeitung said in its Monday edition. The German paper was the first to report the news of the simulation. "This (the exercise) doesn't have any connection to any sort of state aid," von Moltke said. Deutsche Bank began the task in late January and expects to conclude it in the third quarter.