Credit: Shutterstock photoAmid investigations over possible money laundering by Deutsche Bank AG 's DB Russian clients, the German banking giant is likely to close its Russian investment banking activities. According to people familiar with the matter, the Frankfurt-based bank's new co-chief executive (CEO), John Cryan, is contemplating to significantly downsize the bank's Russian operations.
Deutsche Bank which has conducted business in Russia for several decades is one of the biggest foreign banks in Russia with over 1000 employees. The potential move may include around 200 job cuts in the investment-banking division there. According to the sources, the possible lay-offs would not lead to any significant financial impact on the bank. Notably, the bank could cater to some Russian clients from other nations.
However, Deutsche Bank is expected to retain a large part of its global transaction banking operations in Russia.
European and U.S. regulators are investigating whether Deutsche Bank's Russian equities operation violated anti money-laundering laws. Last year, the central bank of Russia asked Deutsche Bank regarding certain trades of some Russian clients.
Deutsche Bank was carrying out an internal investigation involving around $6 billion in trades. Notably, on Jul 30, the bank confirmed that it was probing a "significant volume" of doubtful Russian and U.K. trades and has taken disciplinary action against a number of people.
The concerned trades relates to 'mirror trades', wherein Russian clients purchased stocks in rubles through Deutsche Bank, and simultaneous trades through London in which the bank purchased the same stocks at similar amounts in U.S. dollars. Such trades are likely to have facilitated Russian clients in moving funds out of the country without notifying authorities.
Notably, Deutsche Bank's head of Russian equities, Timothy Wiswell, left the company last month. Apart from the legal headwind, Deutsche Bank's Russian investment banking business faces challenges amid the weak economic scenario in the country.
Separately, Deutsche Bank is also mulling over closure or pulling back operations in some countries, along with overhauling several executive positions in the bank.
Bottom-Line
The latest revelation does not come as a surprise. Cryan who succeeded co-CEO Anshu Jain in June, seems to be set to revamp the bank and has stated in a memo in July, "Where we encounter marginal business opportunities or businesses with poor prospects or business lines that are not controlled to the standards we demand, we will exit them, even if this means closing them down." While the company's financials are expected to be exposed to higher legal expenses in the near term, Cryan stated that he remains focused on resolving the issues.
Deutsche Bank, which remains committed to the Strategy 2020, unveiled in April, is set to provide an update by the end of October. The strategy includes target of achieving annual gross savings of €3.5 billion by 2020. Also, as part of the strategy, the company intends to "rationalize" its global footprint by exiting some nations or trimming its presence and intends to focus and invest in core markets where it has a strong presence and long-term growth prospects.
While the bank is focused on several areas including building its capital strength, reorganizing its investment banking and retail businesses and further investing in controls and resilience, the current stressed operating environment and ongoing litigation issues keep up apprehensive.
Deutsche Bank currently carries a Zacks Rank 2 (Buy). Some other top-ranked stocks in the foreign banks space include Mitsubishi UFJ Financial Group, Inc. MTU , Mizuho Financial Group, Inc. MFG and UBS Group AG UBS . All these stocks sport a Zacks Rank #2 (Buy).
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(We are re-publishing this article to correct an error. The original version, published yesterday, Sep 14, 2015, should no longer be relied upon.)
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
