Deutsche Bank Considers Forming 'Bad Bank'

By Jenny Strasburg

Breaking News:

Deutsche Bank AG executives have discussed creating a new unit to house unwanted assets and businesses that could be earmarked for closure, part of contingency planning under way should a possible merger with German rival Commerzbank AG fall through, according to people familiar with the matter.

Deutsche Bank for years has been retooling its strategy and management, promising to reinvigorate profits, repair compliance weaknesses and cut rising costs. Executives insisted publicly up until late 2018 that the bank should only consider deals after it heals itself. Now, deep into merger talks, it is looking at a potentially bigger cleanup effort than it previously signaled.

Planning for a possible no-deal outcome has taken on greater urgency at Deutsche Bank as merger talks have proven more complicated than proponents originally expected, the people said.

Staunch union resistance to massive job cuts needed for a deal to work financially have proved an especially difficult impediment since the two banks revealed in mid-March that they are exploring a potential tie-up. Deutsche Bank at that time described the merger talks as part of a strategic review aimed at boosting its profitability.

A new unit for disposing of assets and discontinued operations -- a so-called bad bank -- could be used flexibly, whether Deutsche Bank strikes a deal or not, some of the people said. A merger would likely require Deutsche Bank to make sizable cuts to parts of its investment bank, narrowing the scope of businesses to focus resources on more-profitable areas as part of a strategy overhaul, some of the people said.

(More to come)

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

(END) Dow Jones Newswires

April 23, 2019 14:48 ET (18:48 GMT)

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