Exclusive: Deutsche Bank open to US modernization in merger negotiations – sources

NEW YORK (Reuters) – Deutsche Bank has declared open to a new restructuring of its US investment bank after Commerzbank executives have sought clarification on its plans for merger negotiations, according to three analysts. sources close to the file.

The future of the US presence of the brokerage bank and investment bank had already been questioned, some shareholders claiming further reductions in addition to those announced last year. Speculation has intensified after confirmation of merger talks last month.

Among the options offered by the bank during the negotiations, there was a further reduction in its US equity business, including prime brokerage services for hedge funds, and reductions in its corporate finance business, indicated the sources.

Commerzbank wanted to be reassured. Deutsche Bank was willing to make larger cuts to its US loss-making operations to continue merger talks, the sources said.

The two banks have begun discussions on the potential deal over the past three weeks and a decision on whether to intensify or close talks is expected this weekend, the sources said. It is unclear how many of the bank's 10,000 employees in the US would be affected by new cuts. Last year, the bank announced that it would reduce its overall workforce from 97,000 people to less than 90,000. This included a 25% reduction in the number of jobs in sales and trading actions, including a significant number in New York. In a research note released on Friday, KBW analysts said Deutsche Bank could cut 15 percent of its global investment bank workforce, about 2,500 jobs, to achieve the necessary cost savings. to the success of the operation. Deutsche Bank and Commerzbank both refused to comment.

David Hendler, an independent analyst at Viola Risk Advisors, based in New York and specializing in risk management, said he thought the majority of cuts would be outside of Germany.

"If you want to relieve the staff in Germany, you have to reduce more in New York and possibly London too. Deutsche Bank does not have a competitive advantage in investment banking in the United States, "he said.

Deutsche Bank Chairman Christian Sewing said in a memo to staff last month that the bank wanted to remain a global bank with strong capital market activity. Commerzbank Managing Director Martin Zielke believes that a strong and focused investment bank would be a great asset to the lender, according to a person familiar with his thinking. The German government, which has called for a merger to create a national champion of banks, wants the combined company to maintain an investment bank capable of supporting German companies operating around the world, the sources said. A merger between Deutsche Bank and Commerzbank would give the combined bank a dominant position in its domestic market and improve its cost of financing. However, some analysts believe that the agreement has not solved the main problem of Deutsche Bank, its underperforming and capital-intensive US investment bank. Commerzbank has limited investment banking activities and therefore there are few opportunities to generate cost savings in this part of the bank. Deutsche Bank is still striving to turn around a company that weighs on its results. After the financial crisis of 2007-2009, Deutsche maintained a significant presence on Wall Street, even though its European rivals, such as Credit Suisse, had made significant cuts. Deutsche Bank's US operations generated approximately half of the revenues of its entire investment banking business, which includes corporate banking, corporate finance and trading. However, the company, cluttered by litigation and regulatory investigations of past misconduct, has struggled to compete with its Wall Street rivals.