What's going on?
Amid a sharply falling stock price, Deutsche Bank, Germany’s largest bank, sold off a chunk of its investment management business for over €6 billion. But the fall continued as its shares fell another 3% on Friday. Not the wurst news, but not the best either…
What does this mean?
Deutsche Bank has been forced to raise money from investors in recent years in order to shore up the amount of extra cash it holds (as a buffer in case the loans and other investments they make don’t get re-paid / return a profit).
Partly in order to raise more money, Deutsche Bank decided to turn its investment management business, called DWS, into a separate company and list it on the German stock exchange. In other words, Deutsche Bank is selling part of DWS to new owners.
Why should I care?
For markets: DWS still remains important to Deutsche Bank – for now.
Deutsche Bank only sold 22.5% of DWS, so it remains DWS’s majority shareholder. The relatively steady returns of an investment management business are attractive for Deutsche Bank, which last week warned that its investment bank continues to suffer from “headwinds” (the bank-speak version of the shrug emoji). Nevertheless, Deutsche Bank may be tempted to sell more of DWS in the future if it needs more cash.
The bigger picture: Deutsche Bank’s falling stock price may be a warning sign.
Deutsche Bank’s stock price has fallen almost 30% this year alone and is nearing levels seen in the summer of 2016. It’s not clear the exact cause, but the rate at which banks lend to each other has increased sharply in recent months, making it more expensive for banks to fund their day-to-day operations such as providing loans (basically, eating into profits). Whatever the reason, it’s worrying for investors to see a major bank’s shares decline so sharply as it suggests there are significant fundamental issues – which can affect the wider financial system.