Deutsche Bank (DB) - Get Report surged to the top of the German market Monday, helping financial sector shares pace gains around the region, following multiple reports that the troubled lender is ready to create a "bad bank" to house underperforming assets.
The bad bank plan, first reported by the Financial Times, would form part of a broader overhaul for Deutsche Bank that would see it pull back from equity and fixed income trading outside of Europe as it moves to slim costs, reduce risk and return to profitability. The so-called "bad bank" portion of the plan, according to multiple media reports, would be designed to hive off around €50 billion worth of assets, mostly longer-date derivatives, from the lender's main business.
Deutsche Bank shares were marked 2.9% higher in mid-morning trading in Frankfurt and changing hands at €6.20 each, a move that snaps a three-day losing streak but would still leave the stock nursing a one-year decline of around 45%.
Last month, Deutsche Bank CEO Christian Sewing vowed t make "tough cutbacks" at the struggling lender during a speech to investors at the bank's annual general meeting in Frankfurt.
"We will analyse (the bank's challenges) very closely and will be just as disciplined and uncompromising with this as we are with costs," Sewing said. "This means that we will further tighten our capital allocation and implement our hurdle rates rigorously group-wide. That benefits our shareholders."
"We're prepared to make tough cutbacks," he added. "We will accelerate transformation by rigorously focusing our bank on profitable and growing businesses which are particularly relevant for our clients. That is my pledge, and you can be sure of that."
Germany's biggest bank has been beset by myriad headline risks ranging from a failed merger attempt with rival Commerzbank AG (CRZBY) , last year's warning from U.S. regulators regarding its risk management practices, a string of losses from its trading division and the planned exit of major shareholder HNA Group.
Deutsche Bank shares have been hoovering near record lows this month as as pressure continues to mount on the region's biggest lender amid calls to increase its capital buffer and record low interest rates in the struggling European economy.
Benchmark 10-year German bunds traded near a record low of -0.252% Monday as data continues to suggest that the prolonged U.S.-China trade spat could trigger a global recession. Those concerns, as well as a more pronounced slowdown in Germany over the first three months of this year, pushed the country's Financial Stability Board to have domestic lenders set aside nearly $6 billion in extra cash, starting this summer, as a precaution against further risks.
The Deutsche Kreditwirtschaft, a German banking lobby group, warned last week that the new capital measures come at "an inopportune time and is met with incomprehension in the German banking industry."
"German banks have increased their capital resources following the financial crisis as a result of the stricter regulations and are significantly more stable than before," the lobby group said.