ECB Asks Deutsche Bank to Model Wind Down of Trading Book

By Steven Arons and Nicholas Comfort


Deutsche Bank AG has been asked by the European Central Bank to simulate an orderly wind-down of its trading book, Chief Financial Officer James von Moltke told Bloomberg Monday.

“There’s no novelty about the exercise per se; the novelty is that we’re doing this with the ECB,” von Moltke said. The exercise will take several months, being “broader in scope” than previous ones done for U.K. and U.S. supervisors, he said.

Modeling the wind-down of viable businesses, which regulators in the U.S. and U.K. have required for years, is different from the broader planning for closing an entire bank, which focuses on reacting to a bankruptcy.

“In general, an orderly wind-down of trading activities leads to a release of capital and liquidity that support these books over time,” von Moltke said.

Deutsche Bank is the first to receive such a request from the ECB, according to a person familiar with the matter, who said the ECB is using Europe’s largest investment bank as a ‘guinea pig’ before it sends similar requests to other banks.

The ECB hasn’t publicly begun any comparable, system-wide exercise for the banks under its supervision. A spokesperson declined to say whether Deutsche Bank was the first bank to receive such a request, noting that “the ECB does not comment on individual banks.”

“There are in general various exercises such as recovery plans which the supervisor asks banks to provide,” the ECB spokesperson said.

News of the exercise was first reported by Sueddeutsche Zeitung.

Deutsche Bank last week appointed Christian Sewing as its new chief executive officer, who has indicated he will continue a review into its investment bank division with a view to cutting unprofitable business lines, especially in the U.S. The division has been lagging rivals for several quarters. Deutsche Bank’s own compilation of analysts’ forecasts for the first quarter predicts another contraction in revenue, in contrast to the growth reported last week by U.S. rivals JPMorgan Chase & Co. and Citigroup Inc.

The ECB spokesperson said that “the ECB does not intervene in any business model decisions of banks.”