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In Deutsche Bank's giant yard sale, Goldman is eager buyer
[DUBAI] Deutsche Bank AG has found a willing partner in Goldman Sachs Group Inc as the German lender tries to quickly offload billions of euros worth of unwanted assets.
The US bank bought securities with a notional value of about 40 billion pounds (S$71 billion) from the German firm, people briefed on the matter said. It's at least the second time Goldman Sachs has taken advantage of the sweeping deleveraging effort underway since Deutsche Bank chief executive officer Christian Sewing unveiled a new turnaround plan in early July.
In September, the US investment bank purchased the Asian portion of a portfolio of equity derivatives that the German lender had put up for sale, people familiar with the matter said at the time. Barclays and Morgan Stanley each bought a portion too, the people have said. And BNP Paribas previously agreed to take over the hedge fund business.
The assets bought by Goldman in the latest deal are tied to emerging market debt and were previously housed in Deutsche Bank's wind-down unit, one person said. They asked not to be identified discussing the private deal. Representatives for Deutsche Bank and Goldman Sachs declined to comment.
Deutsche Bank shares rose as much as 1.9 per cent on the news, paring this year's decline to about 4.4 per cent. That compares with an increase of about 5 per cent for the wider industry.
Deutsche Bank's wind-down unit is a cornerstone of the July revamp under Mr Sewing. Its goal is to release tied-up capital by reducing assets quickly while avoiding deep write-downs on them. Ultimately, that's expected to help the bank replenish its capital buffers, which the CEO is currently drawing down to cover the costs of the restructuring.
For Goldman, it's an opportunistic move that allows the firm to help burnish its brand and could aid in its expansion of market share. The move isn't designed to be a major profit driver but allows Goldman to expand its scale and take advantage of a competitor shrinking its trading presence. Large, established trading desks at the big banks have been benefiting from some of their smaller competitors ceding ground to increase their dominance.
Mr Sewing has vowed to cut the leverage exposure - a regulatory measure of risk - in the wind-down unit to 119 billion euros (S$179 billion) at the end of the year, from 177 billion euros at the end of September.
The unit trading emerging-market debt had a weak third quarter, though momentum picked up at the end of the period, the bank said in late October. Deutsche Bank plans to maintain a "robust, broad-based" Emerging Markets debt trading platform, it said. The portfolio just sold to Goldman Sachs was moved into the wind-down unit in July, one person said.
It's not clear how much the latest sale will contribute to Mr Sewing's goal since an asset's notional value says little about its impact on the balance sheet.