Germany : Deutsche Bank may scrap planned Postbank spinoff

FRANKFURT : Deutsche Bank may abandon plans to spin off its retail unit Postbank given a weak IPO market and the absence of a good offer from a prospective buyer, a source close to the matter said on Thursday.

Germany’s largest bank announced last year that it wanted to sell Postbank, mainly to free up regulatory capital, but Chief Executive John Cryan acknowledged in May that a flotation would be challenging in the current capital market environment, which has seen hardly any listings in Germany this year.

The source said the bank now sees only a slim chance of floating Postbank by the end of next year and does not see any signs of a good offer from a potential buyer.

German business monthly Manager Magazin first reported on Thursday that the sale may be off.

Deutsche Bank, in a statement, declined to comment on its plans for Postbank.

The bank also denied a report by Manager Magazin in its story on Thursday that the lender planned to split in two, with one business focused on capital markets and the other on retail and corporate clients, in a plan internally dubbed ‘Project Jade’.

The bank said in a statement that ‘Project Jade’ was not about splitting up Deutsche Bank, but has been a long-running project aiming to simplify its structure.

A top 10 Deutsche Bank investor, who did not wish to be identified, said it would not object to the lender keeping Postbank, which has 149 billion euros in assets and contributed a solid profit to Deutsche Bank’s otherwise dismal 2015 results.

However, without the money raised from a sale, the bank would need to apply deep cost cuts elsewhere to meet an expected regulatory requirement of holding capital reserves worth 4 percent of its balance sheet.

As of March, the bank’s leverage ratio had decreased to 3.4 percent.

“To survive in the long term, Deutsche Bank will have to massively cut its investment banking activities,” said Dieter Hein, analyst at Fairesearch-Alphavalue.

Sources told Reuters in February Deutsche Bank would cut the book value of Postbank to 2.8 billion euros ($ 3 bln) because the then book value of 4.5 billion euros was seen as unachievable in either an initial public offering or a sale.

Cryan said in May that the bank was either hoping for a market recovery or looking for “a slightly more creative way” to dispose of Postbank.

When the decision to spin off Postbank was taken, Deutsche Bank’s supervisory board opted against an alternative plan of splitting the bank into a retail banking unit – which would have included both Postbank and its own-brand retail chain – and a pure investment and commercial bank.

This so-called “big solution” was, at the time, thrown out because of the expected technical difficulties of executing such a move and concerns that a complete exit from retail in favor of investment banking would raise Deutsche’s risk profile in the eyes of ratings agencies.