Deutsche Bank AG is considering extensive cuts to its cash equities business in the US as part of a wider restructuring of its investment bank, according to people familiar with the matter.
A decision could come as early as this week and may be communicated as part of a larger package of changes to the German lender’s securities unit, said the people, asking not to be identified.
No final decision has been made and the supervisory board was to discuss the issue today ahead of the scheduled publication of the financial results for the first quarter the following day, according to the people.
Cash equities has traditionally been a core business of investment banks, but regulation and technology have made it less profitable in recent years.
A retreat from that business in the US, where Deutsche Bank has struggled to compete with the large Wall Street firms, would mark a strategic shift under new chief executive officer Christian Sewing.
In a first memo to staff, Sewing had taken a tough line on the bank’s stubbornly high costs and said the bank would pull back from areas where it is “not sufficiently profitable.”
Deutsche Bank ranked between seventh and ninth among investment banks in revenue from the cash equities business, according to data compiled by Coalition Development Ltd.
Global revenue from that business across 12 of the largest firms dropped to a total of US$9.2 billion last year, the lowest since at least 2006, the data show.
“They’re pretty significant on the institutional side,” said Larry Tabb, founder of market research firm Tabb Group LLC.
Still, stiff competition among brokers means the bank’s clients will have plenty of other options, he said.
Sewing and Garth Ritchie, the head of the investment bank who built his career in cash equities, are currently reviewing all operations of the division, particularly the US operations, according to people familiar with the matter.
The review, internally dubbed “Project Colombo,” examines each unit according to three or four criteria: how profitable it is, whether its products are critical for clients, how much regulatory capital it ties up, and how much investment it would need to be competitive in future.
Deutsche Bank’s global equities unit has been particularly weak in recent years. Revenue has fallen for 10 straight quarters.
The unit’s US arm cost US$5 for every US$4 of revenue it brought in last year, a JPMorgan Chase & Co report said.
The cash equities business has suffered from a transition to automated trading and passive investing, both of which have cut the need for human input into day-to-day equities trading.
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