TheChek News Flow

Division must be reduced whether or not Commerzbank merger proceeds

Regulators are calling on Deutsche Bank to further shrink its US investment bank, increasing the pressure on chief executive Christian Sewing to take more decisive action at the failing unit.

The bank’s supervisors are concerned that the division remains too large and unprofitable and needs to be cut back, according to people familiar with the matter. 

“We started to make our regulatory expectations [to shrink CIB operations] clear about two years ago, and we continue to have the view,” said a senior supervisory official. 

The Financial Times first reported those concerns last year and they have been raised informally in discussions with senior Deutsche executives. 

The senior official added that the watchdogs’ stance would not be affected by a potential tie-up with Commerzbank, which Deutsche has been evaluating since March.

One motivation for that possible deal is a hope that a large pool of retail deposits and a potential government stake in the enlarged lender would lower funding costs and reduce clients’ concerns over counterparty risk that are undermining its investment bank. 

Deutsche said that it had reduced the size of its investment bank significantly, including reducing its debt levels by 13 per cent and its headcount by 7 per cent, as well as shifting resources to areas of strength such as transaction banking, foreign exchange and secured lending.

“These actions have already begun to yield results, and we believe they will lead to steady, sustainable improvements in our investment bank,” Deutsche said. “We are moving in the right direction.”

Senior officials at Deutsche’s European watchdogs are convinced, however, that the cuts have not gone far enough and expect further reductions. 

Mr Sewing in February faced calls from four of the banks’ 10 largest shareholders to step up the restructuring of Deutsche’s corporate and investment bank. 

However, chairman Paul Achleitner is still advocating a grand vision of turning Deutsche into a strong European alternative to US-based investment banks like JPMorgan and Goldman Sachs, according to people familiar with his view.

In 2018, the division spent 95 cents on costs for every euro in revenue generated and generated a return on equity of just 0.9 per cent. Analysts on average expect that the division’s income, which is down 31 per cent since 2015, will fall another 4 per cent this year. 

“These issues won’t disappear in a merger,” said the senior official. 

A person familiar with the discussions said: “The future of Deutsche’s investment bank is not a subject in the merger talks between the lenders.”

Deutsche Bank, Commerzbank, the European Central Bank, BaFin and the Bundesbank all declined to comment.

* EDP Upgraded to Buy at HSBC; PT 4 Euros

* Sulzer Upgraded to Outperform at MainFirst; PT 119 Francs

>>> Down

* Anadarko Downgraded to Sector Perform at RBC; PT $65

* Atlas Copco Downgraded to Hold at HSBC; Price Target 280 Kronor

* Centrica Downgraded to Neutral at JPMorgan; PT 1.25 Pounds

* Compass Downgraded to Equal-weight at Barclays; PT 18.50 Pounds

* First Quantum Minerals Downgraded to Hold at Canaccord; PT C$17

* Inficon Downgraded to Hold at HSBC; PT 575 Francs

* JPMorgan Cut to Market Outperform at Vining Sparks; PT $128

* LEG Immobilien Cut to Hold at Bankhaus Lampe; PT 109 Euros

* Lundin Petroleum Cut to Hold at Arctic Securities; PT 330 Kronor

* Nokia Downgraded to Sell at Goldman; PT 4.70 Euros

* Nokia ADRs Downgraded to Sell at Goldman; PT $5.50

* Pfeiffer Vacuum Downgraded to Reduce at HSBC; PT 131 Euros

* VAT Downgraded to Reduce at HSBC; PT 102 Francs

* Wacker Chemie Downgraded to Add at AlphaValue

>>> Initiation

* Alcon Rated New Buy at Jefferies

* Allergan Rated New Hold at Jefferies; PT $155

* ArcelorMittal ADRs Rated New Sector Weight at KeyBanc

* Argenx Rated New Equal-weight at Barclays; PT 120 Euros

* Dow Reinstated at Barclays With Equal-weight; PT $60

>>> Call

* Fevertree’s U.S. Growth is Key to Investment Case, RBC Says

Asian stocks began the week on a mostly positive note after earnings and Chinese economic data eased concerns about a slowdown in global growth, leaving the region’s shares on course for a fresh six-month high.

Chinese and Japanese shares posted the largest gains Monday, with equities in Hong Kong and South Korea also higher. Bullish sentiment spilled into Asia after the S&P 500 Index on Friday climbed to within 1 percent of reaching a new all-time high. Australian bonds fell, tracking the drop in Treasuries prior to the weekend. The dollar steadied with Treasuries and oil started the week with a modest decline.

Nikkei +1.40% Hang Seng +0.50% CSI +1.07% Shanghai +1.01% Shenzen +0.57%

Eur$ 1.1307 CNH 6.7098 CNY 6.7083 JPY 111.92 GBP 1.3090 RUB 64.3005 CHF 1.0018 TRY 5.7961

S&P -0.06% EuroStoxx +0.18% FTSE +0.24% Dax +0.14% SMI +0.27%

Macro :

- ECB Policymaker Sees No Need for Tiered Rates to Help Banks

- Morgan Stanley Sees Two Big Reasons Low Volatility Won’t Last

- ECB's Draghi: the key message of the IMF meeting is that there will be a significant growth slowdown this year

- Russia Fin Min Siluanov: oil prices could drop below $40/bbl for up to a year if OPEC+ partners stops curtailing their output

- Treasury Sec Mnuchin: imbalances must be addressed across Europe; US wants to address trade imbalances

- Macron’s Group Has 22.5% EU Voting Intentions: Harris Poll

- KKR Declares Japan Its ‘Highest Priority’ Outside U.S.: FT

Keep an eye on :

- AIR FP : Boeing Gets $14.3b Defense Dept. Contract for B-1/B-52 Systems

- AIR FFP : EU seeks tariff retaliation for US Boeing subsidies

- AAPL US : Huawei Is ‘Open’ to Selling 5G Chips to Apple for iPhones: CNBC

- BALN SW : Baloise Buys Belgian Insurer Fidea From Anbang for EU480 Mln

- BARC LN : Glass Lewis Urges Barclays Holders to Vote Against Bramson

- BRKN SW : Burkhalter Cuts 2018 Dividend to CHF3.90 From CHF5.00

- B5A GY : Bauer Sees 2019 Ebit About EU95 Mln, Bauer Sees 2019 Revenue About EU1.7b, Ahead of Estimate

- BRW LN : Brewin Dolphin in Talks to Buy Investec Irish Wealth Mgmt Unit

- CBG GY : Most Deutsche Bank Staff Against Commerzbank Deal: Sueddeutsche

- CHERB SS : Cherry to Delist Class B Shares From Nasdaq Stockholm

- CLASB SS : Clas Ohlson March Sales SEK605 Mln

- CLVS US : Clovis Ends Metastatic Bladder Cancer Trial for Rucaparib

- DAI GY : Daimler Cooperating With Authorities on Cheating Allegations

- DBK GY : Regulators Call on Deutsche Bank to Further Shrink U.S. Unit: FT

- EDF FP : Macron Set to Back EDF Nuclear Ops Renationalization: Parisien

- ENEL IM : Enel Mulling Bid for Sempra’s Chile and Peru Assets: Marketwatch

- GALP PL : Galp 1Q Average Net Entitlement Production 110.8 Kboepd

- GALP PL : Galp Shareholders Name CEO Gomes da Silva For New 4-Year Term

- PRTC LN : Gelesis Gets FDA Clearance to Market Plenity

- GNFT FP : Genfit to Present Positive Data From Elafibranor Trial

- GLEN LN : Aeris Unable to Come to Agreement With Glencore on CSA Mine

= IMPN SW : *IMPLENIA CEO SAYS SMALL, BOLT-ON M&A IS POSSIBLE, FUW REPORTS

- MS IM : Mediaset, Sky Italia in New R2 Accord as Watchdog Nod Unlikely

- ML FP : Michelin Sets IDR843/Share Tender Offer Price for Multistrada

- NOKIA FH : Belgium Says It Found No Proof of Spying From Huawei: Standaard

- NHY NO : Norsk Hydro Says Brazil Court Considering Alunorte Decision

- OHL SM : OHL to Sell Canelejas Complex in Madrid: Expansion

- PUB FP : Publicis First Quarter Revenue EU2.12 Bln

- PUB FP : Publicis to Buy Alliance Data’s Epsilon for $4.4b Cash

- RDSA NA : Reliance Industries, Shell May Exit Panna-Mukta Oilfields: ET

- STRN BA : Stern Gets Unsolicited Offer, Sees Insufficient Ground to Engage

- QIA GY : *FDA ALSO APPROVES QIAGEN'S COMPANION DIAGNOSTIC WITH J&J DRUG

- VIV FP : Vivendi First Quarter Revenue EU3.46b, Est. EU3.38b, Vivendi Posts Quarterly Sales Gain on Buoyant Music Market

- VOW3 GY : VW Unveils Apple-Skinned SUV Challenger to Tesla’s Model X

- VOW3 GY : Volkswagen Says China Demand Picked up in April on VAT Cut

- VOW3 GY : Volkswagen CEO Plots Major China Push as Trouble Looms at Home

- WTB LN : Whitbread Is Expected to Cut Over 100 Head-Office Jobs: Times

- WKL NA : Applied Therapeutics Files IPO

* EDP Upgraded to Buy at HSBC; PT 4 Euros

* Sulzer Upgraded to Outperform at MainFirst; PT 119 Francs

>>> Down

* Anadarko Downgraded to Sector Perform at RBC; PT $65

* Atlas Copco Downgraded to Hold at HSBC; Price Target 280 Kronor

* Centrica Downgraded to Neutral at JPMorgan; PT 1.25 Pounds

* First Quantum Minerals Downgraded to Hold at Canaccord; PT C$17

* Inficon Downgraded to Hold at HSBC; PT 575 Francs

* JPMorgan Cut to Market Outperform at Vining Sparks; PT $128

* LEG Immobilien Cut to Hold at Bankhaus Lampe; PT 109 Euros

* Lundin Petroleum Cut to Hold at Arctic Securities; PT 330 Kronor

* Nokia Downgraded to Sell at Goldman; PT 4.70 Euros

* Nokia ADRs Downgraded to Sell at Goldman; PT $5.50

* Pfeiffer Vacuum Downgraded to Reduce at HSBC; PT 131 Euros

* VAT Downgraded to Reduce at HSBC; PT 102 Francs

* Wacker Chemie Downgraded to Add at AlphaValue

>>> Initiation

* Alcon Rated New Buy at Jefferies

* Allergan Rated New Hold at Jefferies; PT $155

* ArcelorMittal ADRs Rated New Sector Weight at KeyBanc

>>> Call

* Fevertree’s U.S. Growth is Key to Investment Case, RBC Says