Deutsche Bank Plans to Recombine Markets and Investment Bank -- Update

By Jenny Strasburg

Deutsche Bank AG will shake up its structure and its upper-management ranks, and seek to raise fresh capital, in the first major reversals of Chief Executive John Cryan's nearly two-year-long overhaul.

The moves would recombine Deutsche Bank's giant trading division with its investment bank, a year and a half after Mr. Cryan separated the two. Mr. Cryan had also repeatedly said he wanted to avoid raising new capital by selling shares.

Friday night, Deutsche Bank confirmed that it is doing "preparatory work" for a roughly EUR8 billion (about $8.5 billion) capital increase. The German lender has been sounding out investors about a potential multibillion-dollar share sale, people familiar with the matter said.

Analysts have said Deutsche Bank needs to raise between EUR5 billion and EUR10 billion to satisfy capital requirements and build a cushion to handle ongoing high legal expenses and potential losses.

The management changes would position Chief Financial Officer Marcus Schenck and Christian Sewing, a fellow management-board member who oversees retail and private banking as potential internal candidates to eventually succeed Mr. Cryan, the people said. Messrs. Schenck and Sewing, who are both German, would be named deputy chief executives, the people said.

Mr. Schenck would also move into a job co-running the newly combined markets and investment-bank unit. He would share that job with the current markets head, Garth Ritchie, the people familiar with the matter said. The executive currently running the investment bank, Jeffrey Urwin, plans to depart, they said. Deutsche Bank is searching for a new CFO, the people said.

The markets unit houses Deutsche Bank's massive debt- and stock-trading businesses. Mr. Cryan in late 2015 split the investment bank in half, separating the deal-advisory and corporate-finance unit from the trading business.

Shares of Deutsche Bank are up 11% this year after hitting multiyear lows in 2016. But some investors have been worried that selling shares won't fix fundamental problems in key businesses that have lost profits and market share, including in the trading and merger-advisory units, investors and employees say.

The lender could raise about EUR2 billion selling a minority stake in its asset-management business, a move it has been preparing to make, bankers say. Deutsche Bank confirmed Friday night it might sell a minority stake in the business through a public offering and also could retain its German retail-banking unit called Postbank. Previously the lender was separating Postbank in preparation for a sale. No decision is final, the bank said Friday night.

The Wall Street Journal reported in February that Mr. Urwin, the current corporate and investment-banking chief, is in discussions to leave and has told colleagues he plans to retire.

The Journal also reported last month that Deutsche Bank was in talks to move Mr. Schenck into Mr. Urwin's role. Mr. Urwin didn't respond to requests for comment.

Uncertainty about investment-bank management has contributed to internal personnel issues in a business stung by bonus cuts and a series of defections, people inside the firm say.

At the same time, investors have looked for Mr. Cryan to clarify Deutsche Bank's plans for generating capital through profits from its businesses, but those efforts have been hurt by a loss of clients and planned cutbacks.

The discussions about a capital increase have been ongoing in recent months but picked up in February as Deutsche Bank's share price improved and investors were tapped regarding their interest in buying shares, people familiar with the matter said. Still, Deutsche Bank officials in recent weeks haven't been in full agreement about some of the capital and strategy questions, including the timing of announcing planned changes, the people said.

Messrs. Cryan and Schenck said repeatedly during the past year that they wanted to avoid raising capital by selling shares and that the bank meets existing capital requirements. They also said they couldn't rule out options.

Write to Jenny Strasburg at jenny.strasburg@wsj.com

(END) Dow Jones Newswires

March 03, 2017 18:09 ET (23:09 GMT)

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