CEO Christian Swing is considering reducing the leveraged loan business at Deutsche Bank. This is due to several reasons.
© Deutsche Bank
Deutsche Bank may make cuts in its leveraged loan division, Bloomberg News reports. Sources say this is a possible result of an analysis of underperforming companies by bank chief Christian Swing after the completion of the three-year restructuring.
The review, due to be completed later this year, could reduce the capital and staff allocated to leveraged financing — the lending business with highly indebted companies — according to people familiar with the matter. According to reports, resources could move to other areas, likely including consulting work.
Both divisions are part of the underwriting and advisory business led by Mark Fedorsic, which has struggled this year. Corporate clients shied away from deals and raised capital amid soaring inflation and geopolitical tensions. Leveraged financing has been a sore spot in general, as turnover has declined, distressed deals have caused billions of dollars in losses and regulators have become more vigilant about risks.
Deutsche Bank’s leveraged finance business in the US is down nearly 80 percent year-on-year, Bloomberg News reports. On the other hand, Fedorsic is confident that the transactional advisory business in the technology and healthcare sectors will increase in the next year.
“We regularly review our portfolio as part of normal management and business planning,” a Deutsche Bank spokesperson said, without giving further details. She said the current review is more comprehensive than usual.
Deutsche Bank has already shed dozens of underwriting and advisory functions, including leveraged financing, which was announced last month. She said those cuts could go further to reduce costs, while also implementing performance-related layoffs. No comprehensive program of job cuts is planned.
Deutsche Bank was in the top 10 for global mergers and acquisitions, but it has slipped to 38th place this year, according to Bloomberg data. The leveraged finance business is on track for its worst year in nearly a decade.
The tailoring review aims to lay the strategic foundations for the next few years after the end of the general overhaul that began in mid-2019. The heads of individual business areas should examine which products, customers or areas they should reduce or strengthen. Capital must migrate to areas where Deutsche Bank can generate the highest returns.
Increasing profits at the investment bank, particularly in trading, was a major reason for Deutsche Bank’s increasing profitability and the success of its tailoring recovery programme. It is likely to contribute much less to earnings growth in the coming years.
The leveraged finance business has also created tensions with the European Central Bank’s watchdog. The European Central Bank has already charged Deutsche Bank a capital surcharge for the deal. (aa)