The restructuring and widely expected name change follow Deutsche Bank's failure to successfully integrate its London merchant bank into its core German banking business.
"It will not be easy," said Bill Harrison, the newly-appointed vice-chairman of DMG."But it is entirely the right thing to do. It opens the German client base to corporate banking."
Radical change is certainly needed if Deutsche Bank wishes to compete against Wall Street investment banks and capitalise on its position as the largest bank in the world's second largest economy.
Deutsche's problem is that in Germany it is perceived as a classic lending institution, failing to find a way to deliver City-type merchant banking to it German corporate clients. Instead, it has lost business to Wall Street investment banks able to offer merger & acquisition advice and other high-margin financial services to German clients without falling foul of complex domestic cultural considerations.
"Because Deutsche Bank Morgan Grenfell adopted an Anglo-American image, it failed to do any major transactions [in Germany]," said Arno Burckhardt, chief executive of M&A International in Frankfurt. "The Deutsche Bank has to operate according to the wishes of its German corporate clients. They are not willing to see it as an Anglo-American investment bank." Meanwhile, the same German companies have been willing to buy Anglo-American investment banking services from Deutsche's Wall Street competitors.
Morgan Grenfell had a reputation for ruthless efficiency during the great takeover boom of the mid-1980s but fell from grace after some of its executives were found to have been involved in the Guinness insider dealing scandal. Deutsche Bank bought it 1989.
Dropping the Morgan Grenfell name might help Deutsche Bank improve prospects for its investment banking services in Germany, but other obstacles remain to its makeover of its merchant bank unit.
German politicians and unions are opposed to hostile corporate bids and they have more leverage over Deutsche Bank than they do over foreign bank branches in Frankfurt.
Last year's sole hostile takeover bid in Germany - Krupp's bid for Thyssen - resulted in a fiasco for Deutsche Bank. It was acting as adviser to Krupp at the same time as one of its directors was sitting on the Thyssen supervisory board.
This resulted in bitter condemnation of the bank by the unions and politicians. The hostile bid was converted into a "friendly" merger.
But despite such political pressures, German industry continues to restructure, creating a pounds 50bn market for corporate advisers.