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Deutsche Bank shareholders push for sale of Postbank

Investors in Deutsche Bank are pushing for a sale of the group’s Postbank retail business as the German lender’s supervisory board prepares to meet on Friday to discuss the bank’s strategy review.

Germany’s biggest bank is looking for ways to bolster returns, faced with a combination of sluggish markets, litigation and tougher regulation that wiped 23 per cent off its share price in 2014 alone.

The bank has said it will unveil its new strategy in the second quarter and is expected to do so before its May 21 shareholders’ meeting. This will be a key moment for co-chief executives Anshu Jain and Jürgen Fitschen, whose previous targets the bank is likely to miss.

Retail banking in Germany is less profitable than in many other European countries because of fierce competition from the country’s proliferation of local savings banks and Germans’ traditional aversion to higher margin products, such as credit cards.

“[Deutsche] need to do a proper restructuring of their retail business, as the low returns there are making it very hard for them to achieve their group targets,” says Vincent Vinatier, a portfolio manager at AXA Investment Managers, one of Deutsche’s top 50 shareholders. “If they were to sell off part of Postbank, as well as their other retail businesses in the rest of Europe outside Germany, that would be quite convincing. Suddenly you would have a much cleaner story.”

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Other big shareholders have also been demanding Deutsche sell off part or all of Postbank, whose €144bn of assets generates relatively low returns but puts pressure on Deutsche’s under a new regulatory measure dubbed the leverage ratio.

Deutsche had a leverage ratio of 3.5 per cent in December, meaning it had 35 cents of equity for every €10 of assets — US banks have to increase their leverage ratios to at least 5 per cent and investors want Deutsche to be closer to the American norm. Getting to 5 per cent would require a more than €300bn reduction in the bank’s €1.7tn balance sheet, according to analysts, assuming no increase in equity.

The retail unit, which houses Postbank, managed a return on equity of only 6 per cent in 2014, giving it the worst return of the bank’s four core divisions. Deutsche has been targeting a 12 per cent return for the group as a whole by 2016.

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Deutsche bought into Postbank in 2008, but the unit has relatively little overlap with its other non-retail businesses, and some analysts reckon it is not so tightly woven into Deutsche that a deconsolidation would be impossible.

“The cost base in their retail business is almost €7bn, which is more or less where it was three years ago,” says Kinner Lakhani, an analyst at Citigroup. “That suggests that they are behind the curve on integration.”

Disposing of Postbank would deprive Deutsche of deposits that have helped to balance the wider group even though it has not been able to use excess deposits from the retail bank to finance its investment bank as originally hoped.

Under the net stable funding ratio that is part of the Basel III rule book, banks must finance their activities with sufficiently stable sources — such as retail and corporate deposits or long-term bonds — in order to mitigate the risk of future funding stress.

Deutsche-Bank-chart

Without Postbank’s deposits, people familiar with the situation say that Deutsche would need to make further heavy cuts in parts of its investment bank to still comply with the net stable funding ratio. The most likely area to be reduced would be the rates trading business and prime brokerage operations, which are both hit particularly hard by Basel III rules.

However, unlike rivals such as UBS, Barclays and RBS, which have drastically cut back their investment banking activities, Deutsche is likely to remain a big operator in the area — a stance that has some support among investors.

“Committing to investment banking is in principle the right strategy,” says Helmut Hipper, a fund manager at Union Investment, one of the 20 biggest shareholders in Deutsche. “In the good times, this is where you can make the best returns.”

Rival bankers point to the relative size of Deutsche’s investment banking business as a reason for not retreating further. While UBS had a sizeable wealth management business to fall back on, and RBS and Barclays have sizeable retail businesses, for Deutsche, investment banking is the powerhouse.

Deutsche-Bank-chart

The unit generated 43 per cent of net revenues in 2014, against retail’s 30 per cent. Its share of profits was even higher, since it makes higher returns.

“Deutsche doesn’t have a second engine,” says one rival, adding that to sustain a transformation it would be necessary to have another part of the business generating enough profits to keep overall earnings on track.

Deutsche could find its way there eventually, the banker says, if it were able to make acquisitions that would allow the bank to diversify its earnings.

With the bank’s share price trading at 61 per cent of book value, acquisitions are for now a distant prospect.

Deutsche-Bank-chart

However, Deutsche has other ways to grow. Its asset and wealth management business has become increasingly important over the past three years and, even without acquisitions, is likely to expand further.

With regulations in flux the bank’s last strategic review stopped short of making drastic changes. However, this time around investors say a more radical approach is needed.

“If by 2017 they have done a proper restructuring and they have managed a return on equity of 10 per cent, they won’t be trading at 0.6 times book,” says Mr Vinatier of Axa. “The scale of the upside is very significant. But they need to grab the bull by the horns.”

The preparations for the integration of the US of shares, Dresser-Rand in the Siemens group run rough. The outgoing Dresser-Rand boss Vincent Volpe ever new demands, parts of the Siemens Energy Business at the Texas manufacturer of compressors, small gas and steam turbines incorporate. This was reported by the manager magazine in its latest issue, which is available on Friday (March 20) in commerce.

manager magazin relies on Siemens' corporate circles. According to manager magazin is provided only Siemens' compressor business strike the Americans.

Siemens announced The € 7.6 billion dollar deal last September. However, the legal closing of the transaction (Closing) delayed further and becomes more expensive by at least 200 million dollars, as the manager magazine writes.

Surprisingly, the European Commission launched a few weeks ago an in-depth examination relating to antitrust concerns and ensure more recently extended the deadline on July 14. On 1 March, a late fee is charged to 43 million dollars a month.

The acquisition, with the Kaeser the oil and gas industry wants to conquer in the US, is criticized by many analysts as overpriced.

In the wake of the oil price decline Dresser-Rand 2014 failed with an annual operating profit of $ 288 million its own forecast by nearly $ 100 million. A Siemens spokesman declined to comment.

Blueshift Capital Caught Out on Oil Market Volatility

Main fund dropped 8% as oil markets rebounded

The New York-based firm, which trades volatility in energy markets and other commodities and runs about $170 million in assets, saw its fund drop 8.4%, according to numbers compiled by a hedge fund investor and reviewed by the Wall Street Journal. A spokesman for Blueshift declined to comment. The hedge fund investor said that the fund is likely to be doing better this month, along with other commodity hedge funds that suffered in February.

A fairly steady decline in the price of Brent crude from more than $100 a barrel in September to below $50 in January has provided a good money-making opportunity for hedge funds, but last month saw a sharp rebound of around 18%. That caught out some managers, say investors, with commodity funds on average losing 0.6% last month, according to Hedge Fund Research.

A series of sudden price swings in markets across asset classes has proved tricky for some hedge funds to navigate in recent weeks. Big moves have been seen in currency, commodity, equity and bond markets as traders seek to understand the eventual impact of central bank action on markets.

Blueshift’s loss leaves the fund down 6.5% for the first two months of the year, after having gained more than 9% last year and almost 15% in 2013, when the fund began trading.

- BOE can ease policy if needed to fight low inflation

Focus: Five questions on the ECB's sovereign purchases, ten days on

Bottom line: On March 5, the ECB presented technical details for its sovereign debt purchases under the Public Sector Purchase Programme (PSPP), following January's announcement of the programme by the Governing Council. This programme is expected to be maintained at least until end-September 2016, unless the ECB "see[s] a sustained adjustment in the path of inflation which is consistent with [the ECB's] aim of achieving inflation rates below, but close to, 2% over the medium term". After the first 10 days of this new programme, we address five questions related to its implementation, impact and future practicalities. The first week of the programme appears to have evolved in line with the ECB's announcement. We believe there is little risk that PSPP purchases will stop before end-September 2016, but expect the ECB to exploit the flexibility it has allowed itself with respect to the composition and maturity of purchases to the full.

At its press conference on March 5, 2015, the ECB presented technical details of its sovereign debt purchases under the Public Sector Purchase Programme (PSPP). According to ECB President Mario Draghi, this programme is expected to be maintained at least until end-September 2016 and "in any case until [the ECB] see[s] a sustained adjustment in the path of inflation which is consistent with [the ECB's] aim of achieving inflation rates below, but close to, 2% over the medium term".*

After one week of implementation of the PSPP, we address five questions that have arisen on the purchases.

1. Are the PSPP purchases in the first week consistent with the EUR60bn per month target?

Yes, but on the tight side.

The ECB's EUR60bn per month target implies a purchase rate or 'run rate' of around EUR3bn per working day and EUR14bn per week (although purchases of sovereign debt under the PSPP are only one component of the intended run rate; purchases of ABS and covered bonds also need to be allowed for).

The official figures published show that the ECB purchased EUR3-4bn in the first day (i.e., slightly above the required run rate) and EUR9.8bn in the first week (slightly below the required rate). While the amount for the first week as a whole appears on the tight side relative to the target, we expect an increased rate of intervention by the end of this month.

2. Have the purchases had an impact on financial markets?

One of the motivations behind the PSPP was to sustain the Euro depreciation and consolidate further the improvement in financial conditions. The liquidity injection through the PSPP could thus encourage consumers and entrepreneurs to bring forward their spending plans and thereby have a positive impact on growth (via the impact of Euro depreciation on exports) and the outlook for price developments (possibly reversing the decline in inflation expectations seen from the middle of last year).

Recent developments in various financial asset prices suggest that the impact of purchases under the PSPP is in line with these ambitions:

 Equity prices have maintained their rising trend, with the Eurstoxx index breaching the level of 370 since the start of the PSPP purchases (Exhibit 1);

 Bond yields have decreased significantly since the start of the PSPP across (core and peripheral) countries and maturities. Today, the 10-year yield currently stands at around 0.2% for the German Bund, 0.4% for the French OAT, 1.3% for both Italian BTP and Spanish bonds. Similar developments have been observed for public issuers in smaller Euro area countries (e.g., 0.4% for the 10-year Belgian bonds and 1.7% for Portuguese bonds);

 Sovereign spreads narrowed further (Exhibit 2), while the EUR, at 1.05, reached its lowest level in a decade against the USD (see our recent analysis on FX developments);

 Increased upward pressures on excess liquidity (Exhibit 3) have increased further downward pressures on the EONIA in the near future. All in all, excess liquidity currently stands at EUR156bn and it could rise by another EUR700bn by end-September 2016. Such levels would maintain the EONIA close to the rate on the deposit facility with low volatility, as experienced at the peak of the ECB's balance sheet in June 2012. These expectations seem to explain the downward movement of the EONIA forward curve since January (Exhibit 4).

3. Could the ECB stop purchases under the PSPP before end-September 2016?

As stressed by Mr. Draghi, the PSPP is expected to last until there are clear signs of a "sustained" adjustment in the inflation path, bringing it into line with the ECB's price stability objectives. In theory, the ECB could thus stop the PSPP if such adjustments occur before end-September 2016. However, we believe that such a sustained adjustment is unlikely, for at least three reasons:

 The (negative) impact of oil price declines on consumer price inflation in the Euro area is likely to be faster than the (positive) effects of Euro depreciation, even if these effects largely cancel out at a two-year horizon. This explains our baseline scenario of a subdued inflation outlook by end-2016;

 The stickiness of inflation will likely limit a rapid upturn in inflation figures in the short run. Inflation persistence in the Euro area has risen of late: we estimate that inflation in the previous month explains up to 40% of the current month's inflation;

 Consequently, a recovery in inflation expectations is likely to be slow, especially if recent past inflation figures increasingly affect expectations in the short run.

All in all, we therefore believe that a sustained upward adjustment in inflation in line with the ECB's definition of price stability (below but close to 2%) will take time, and significant improvements should not be expected before end-September 2016. Furthermore, by setting a high hurdle to suspending the PSPP, any shortfall in the data relative to the ECB's projections (assuming the PSPP is maintained until September 2016) would make a strong argument for not suspending the programme before end-September, possibly even suggesting that it be maintained for a longer period.

4. Could the ECB encounter difficulties in purchasing bonds in some segments, thereby endangering the credibility of the programme?

Concern has emerged in the market about the feasibility of purchases at the pace announced by the ECB on the grounds that some investors (especially institutional ones) may prove reluctant to sell their high-rated public bonds owing to regulation and lack of alternatives. In addition, the ECB has imposed a set of limits on the character of its sovereign purchases: i.e., the distribution of purchases is in line with the ECB's capital key; purchase limits of 25% and 33% by issue and issuer, respectively; and no purchases of bonds yielding less than the rate on the ECB's deposit facility (i.e., below - 20bp). As a result of these self-imposed constraints, an arithmetical problem could arise if the yield curve in some large countries (say Germany) were to flatten out below the -20bp threshold and the stock of purchasable bonds fell below the ECB's intended purchase volume.

After one week of the PSPP (and subject to uncertainties related to any extrapolation of future developments), these factors do not appear likely to constrain the purchase programme, at least in the near term. Today, although the limit set for the purchases of negative-yielding bonds (-20bp) does not seem to be a concern yet for the Euro area on average (around 94% of public bonds in the Euro area still have yields to maturity above -20bp), the country-based picture may be different (e.g., for Germany, where only 69% of bonds have yields above this limit, whereas all public French bonds have yields above the -20bp limit).**

In the event that the ECB's ability to buy becomes limited, possible further adjustments to the PSPP could be envisaged (such as adjustments to the 25% and 33% ratios, as explicitly mentioned by the ECB itself, or increased focus on substitute assets*** with a possible extension of this list in the future). By contrast, while possible in theory, we do not necessarily believe that a further downward move of the deposit rate is a real option, although it is too early to have a definite view on this issue at this stage.

5. Can we expect the ECB to be flexible in the quantity and composition of its purchases on a month-to-month basis?

Yes, we think this is likely.

Although the stipulated amount of EUR60bn can be seen as a monthly target, the ECB is likely to maintain a degree of flexibility in the composition of purchases (e.g., regarding the breakdown between mutualised (20%) and non-mutualised (80%) purchases, as well as between the national agencies and supranational debt instruments) over the coming 19 months to end-September 2016.

The ECB has decided to publish the aggregated purchase amounts on a weekly basis and additional information on average maturities on a monthly basis. In last Friday's announcement, the ECB did not provide the distribution of purchases by country (or by central bank) behind the aggregated amount of about EUR9.8bn. Partial evidence so far from the market suggests a diversity of purchases in terms of maturity, although with a slight bias towards the long end of the yield curve for many countries (e.g., 4/5/6/9/10/15/16/20/30-year maturity for Germany; 2/3/5/10/15/17/20-year+ maturity for France; 3/5/6/30-year maturity for Italy or 2/8/10/15/25/30-year maturity for Spain). Regarding debt issued by agencies, purchases have tended to focus on maturities in the 5- to 15-year segments. Despite some necessary caution given the limited window of observation, purchases in the first week thus tend to support our view that PSPP purchases will be made on a basis whereby maturity and composition vary quite flexibly, with little in the way of preannounced patterns.

NYT : Obama to Order Cuts in Federal Greenhouse Gas Emissions

WASHINGTON — President Obama will sign an executive order on Thursday to cut the federal government’s greenhouse gas emissions, a White House official said, his latest use of presidential power to address the root causes of climate change.

It is part of Mr. Obama’s effort during his last two years in office to use an expansive interpretation of his presidential authority to counter strong opposition from the Republican-controlled Congress to enacting climate legislation.

Having failed during his first term to push a cap-and-trade bill through Congress, Mr. Obama has begun a systematic effort to regulate pollution through the existing Clean Air Act, advancing new rules on emissions from cars and trucks, power plants and oil and gas wells.

While the federal government is a relatively small contributor to greenhouse gas emissions, the executive order is the president’s attempt to lead by example and push the private sector to change its behavior as a consequence.

Obama Is Planning New Rules on Oil and Gas Industry’s Methane EmissionsJAN. 13, 2015

After signing the directive at the White House, Mr. Obama plans to visit the Department of Energy to tour its rooftop solar panels and talk to private suppliers to the federal government that are committing to reducing their greenhouse gas emissions.

Some of the companies will announce that they are setting new goals for reducing future emissions, the official said.