Deutsche Bank hopes for success with its restructuring plan. This month, Deutsche Bank’s share price hit the lowest point in its 149-year history. This happened after the collapse of merger talks with Commerzbank in April. Fitch, a credit-rating agency, cut the bank’s rating to 2 notches above junk. Fitch Ratings Inc. is one of the big 3 credit rating agencies. The other 2 are Moody's and Standard & Poor's. It is one of the 3 nationally recognized statistical rating organizations designated by the U.S. Securities and Exchange Commission in 1975. Fitch Ratings is headquartered in New York, US.
Deutsche Bank has not confirmed the cuts. They will go beyond its investment-banking arm. The bank’s rates and equities trading business outside Europe will be decreased. A “bad bank” would be created to hold non-core assets that generate little or no revenue. A bad bank is a corporate structure which isolates illiquid and high risk assets held by a bank or a financial organisation, or a group of banks or financial organisations. Up to €50bn ($56bn) is a large part of Deutsche’s risk-weighted assets. The idea of a non-core unit is new.
Investors are fearing the future of Deutsche Bank. The biggest problems are a failing investment-banking arm, high funding costs and the lack of a reliable profit generator. The restructuring plan addresses the first problem, but not much for the other ones. It is difficult for the company to take big losses. It is harder to keep going without profits. Deutsche Bank cannot afford very big changes. In Germany’s labour laws, decreasing headcount would mean difficult social-insurance payments.