French multinational banking group BNP Paribas prepares to bid for Deutche Bank’s equity derivatives book and is hoping it can see off rival bidders to secure a deal in the near future, according to sources familiar with the matter.
Deutsche Bank has put up the unit on sale as part of a restructuring that will see it exit equities trading and other unwanted businesses as well as offload 18,000 employees worldwide. CEO Christian Sewing is hopeful the plan will be a turning point for the bank, whose shares hit a record low this month.
The institution wants to auction its equity derivatives portfolio in September having received significant expressions of interest from private equity firms, banks and hedge funds, the sources said. Deutsche Bank may auction the book in separate part rather than in its entirety.
BNP is nearing taking control of Deutsche Bank’s prime brokerage business, which serves hedge fund customers. A preliminary deal was agreed in July and is expected to be formalized early next month. Any equity derivatives deal would be separate from that arrangement, the sources said.
Both BNP and Deutsche Bank declined to comment on the matter.
Last month, Reuters reported that Deutsche Bank’s derivatives exposure is tying up capital that could have earned about 500 million euros a year.
It is also understood the bank has set aside more than 1 billion euros to take care of the cost of offloading derivatives moved to its so-called “bad bank,” or capital restructuring unit to be wound down or sold.
The restructuring has seen Deutsche Bank withdraw €288 billion euros of assets into the bad bank. Equities, including equity derivatives, accounted for around €170 billion euros of those assets. Fixed-income assets, including credit derivatives and long-dated interest rate, accounted for €79 billion.
The equity derivatives are short-dated and expected to attract a lot of interest from potential buyers. This means Deutsche Bank may not have to take a discount to offload them.
The bank’s longer-dated interest rate and credit derivatives are expected to be a lot harder to sell, as they require serious amounts of capital to be held against them, and could require deep writedowns, sources said.
BNP showed interest in Deutsche Bank’s equity derivatives business earlier this year but the German bank decided against entering into exclusive negotiations having also received interest from other bidders, the sources told Reuters.
The German lender is under pressure to complete the prime brokerage sale quickly or risk losing clients. Barclays is interested in taking on a $20 billion portion of the $200 business.
Deutsche Bank intends to close the deal early next month and start to start the auction of its equity derivatives book shortly afterwards. The deals could take months to complete as purchasers take over individual client accounts.