Deutsche Bank (DB) - Get Report shares traded lower in Frankfurt Thursday following a report from a German business magazine in which Citigroup CEO Michael Corbat dismissed the prospects of a tie-up with the troubled European lender.
Corbat reportedly told Manager Magazin, a respected business publication in Europe's largest economy, that there was "too much overlap" between Citigroup's and Deutsche Bank's businesses and that a takeover based purely on cost savings wasn't a good idea. Germany's biggest lender has been the subject of persistent takeover speculation following a series of disappointing quarterly earnings and news that activist investor Hudson Executive Capital LP, led by former JPMorgan CFO Douglas Braunstein, had built a 3.1% stake.
Deutsche Bank shares were marked 1.45% lower in Frankfurt following release of the interview Thursday, outpacing the 0.57% decline for the broader DAX performance index, and changing hands at €8.22 each by mid-day.
Deutsche Bank shares hit a fresh all-time low earlier this week amid reports that it was the unnamed "major European bank" that helped process around $150 billion in payments linked to the Danske Bank money-laundering scandal that was revealed earlier this year.
Reuters, which reported the naming of Deutsche Bank via one of its sources, was told by Deutsche Bank officials that "We terminated the relationship (with Dankse Bank) in 2015 after identifying suspicious activity."
In June, the German business magazine WirtschaftsWoche reported that JPMorgan Chase and Industrial Commercial Bank of China could be interested in taking a stake in Deutsche Bank, amid speculation over the fate of China-based HNA Group's 7.9% holding in the German lender following the death of its chairman, Wang Jian, during a freak holiday accident in France.
HNA said at the time that Wang's stake in the China-based investment group, estimated to be around 15%, will be "addressed in due course, consistent with his pledge to donate them to charity, and in accordance with all applicable legal and regulatory guidelines."
Once that stake is passed, and the group continues to pare down its estimated $50 billion in debts via assets sales, it could seek to shift its Deutsche Bank stake now that Sewing has vowed to slim the group down and focus on domestic and European markets.
The WirtschaftsWoche report followed news that Deutsche Banks' U.S. division failed the second phase of the Federal Reserve's stress tests, a decision that will likely prevent it from paying a dividend to the parent German lender. The Fed said it had concerns with the way Deutsche Bank's U.S. division forecast future revenues in the face of a theoretical global recession, and a spike in domestic unemployment, and said there were "material weaknesses" its data capabilities and capital planning processes.
The Fed also identified "approaches and assumptions used to forecast revenues and losses arising from many of its key business lines" and in its risk-management", the central bank said, noting that, together, "these weaknesses raise concerns about DB USA's ability to effectively determine its capital needs on a forward-looking basis."
Over the third quarter, Deutsche Bank's trading division, a critical revenue driver, saw 15% declines in both fixed income and equity turnover. Sewing said in July that he had "accelerated the reshaping of our bank significantly and proved the resilience of our global business," over the second quarter, and made "important changes to our core businesses".
"We made headway on our cost reductions," Sewing was quoted as saying in a memo to the bank's 95,000 employees today. "On the other hand we have not yet achieved a turnaround in terms of revenues."
Last month, Deutsche Bank said it has been transitioning its business away from London, including the shifting and ring fencing of financial assets, thanks in part to the uncertainty surrounding Britain's exit from the European Union.
The move follows tighter restrictions from the European Central Bank, which is now the region's key banking regulator, that require lenders to set aside more capital to protect operations in "third countries", a definition that will included the United Kingdom once it exits the EU in March of next year.
Deutsche Bank has targeted significant costs cuts across its global operations, including a pullback in its investment banking division in the United States, as part of a larger effort to re-align its focus to domestic and European markets.
The weak third quarter earnings will complicate its aim to provide investors with a 4% equity return in 2019, particularly if bond trading revenues continue to head south. However, Deutsche Bank CFO James von Moltke told investors last week that the bank has a "good degree of confidence" that the bank can turn the corner on revenues this year.