Deutsche Bank completes deal with BNP

London

DEUTSCHE Bank AG has completed a deal with BNP Paribas SA to transfer its prime brokerage business to the French bank as part of the German lender's biggest overhaul in recent history.

About 1,000 Deutsche Bank employees will transfer to the French bank through 2021, according to people with knowledge of the matter. The two lenders expect that client balances - which dropped to about US$80 billion at the German bank - will recover now there's more certainty on the future of the business, the people said, asking not to be identified as the matter is private.

The two firms had agreed on a deal in principle in early July as Deutsche Bank chief executive officer Christian Sewing retreats from equities trading, which includes the prime business serving hedge funds. But finalising the accord has been complicated by a flood of client defections. For Mr Sewing's counterpart at BNP, Jean-Laurent Bonnafe, a deal could bring the scale needed to compete with the bigger players.

The agreement could vault BNP Paribas into the global top four of prime brokerages over the next 12 months, one that may eventually have between US$250 billion and US$300 billion in client balances, according to the people. Deutsche Bank will continue to manage the platform until clients can be passed over to the French lender, the two banks said on Monday.

"Now that the deal has signed we believe we have the basis to regain and expand on the business," Deutsche Bank chief operating officer Frank Kuhnke said in a telephone interview. The deal "provides tangible real benefits for our customers and gives our staff a way forward".

The deal comes just a few days after Deutsche Bank sold the first portfolio of equity derivatives, which is another key plank of its plan to close equities trading and get the associated assets off its balance sheet quickly and without incurring restructuring costs or write-downs. The bank has said it will provide details about its progress during its third-quarter results presentation on Oct 30.

Prime brokerage divisions cater specifically to hedge funds, lending them cash and securities and executing their trades, and the relationships can be vital for investment banks. The prime business generated about US$18.3 billion in fees in 2018 industrywide, about the same as revenue from trading corporate debt and currencies combined, data from Coalition Development Ltd show. BLOOMBERG