Morgan Grenfell name wins partial reprieve
Thursday 29 January 1998
The German bank announced it would make a 2.5bn German mark (pounds 842m) provision to cover restructuring costs. The announcement, coupled with news it would set aside another DM1.4bn to cover its Asian exposure, prompted credit downgrades.
Deutsche is to merge its investment banking activities, trading under the name of Deutsche Morgan Grenfell, with its corporate banking arm. Bill Harrison, the former chief executive of BZW, Barclays' former investment banking arm, is to play an integral role in the merger. Deutsche is also to bring together its German retail fund management activities with Morgan Grenfell Asset Management (MGAM), the UK business.
Commentators yesterday saw the restructure as a precursor to a large acquisition by the ailing group.
The investment banking operations are to lose the Morgan Grenfell name, and will trade simply as "Deutsche Bank". But it is expected the group will retain the MGAM brand name, which is well-known throughout the industry.
But the bank's announcements were not universally welcomed yesterday. Standard & Poor, the rating agency said it had "uncertainties about Deutsche's successful combination of its investment and commercial banking activities", and was placing the bank on Creditwatch, "with negative implications".
Fitch IBCA, another rating agency, downgraded the bank's long-term rating from AAA to AA+ and its individual rating from A to A/B.
Deutsche admitted yesterday the Far Eastern turmoil would dramatically cut its 1997 profits. The bank said: "Additional risk provisions of DM1.4bn are to be made, mainly to cover the Asian risks which became apparent in the last quarter of 1997. This is a major risk reason for the decline of the group operating profit by about a third compared with 1996."
Deutsche Bank has a total exposure of DM9bn to counterparties in South Korea, Thailand, Malaysia and Indonesia. The exposure is split roughly 50-50 between corporates and banks.
Deutsche is the first German bank to admit the dangers posed by the Asian crisis. Analysts expect Commerzbank and Dresdner Bank, the other big German banks, to follow suit.
Somewhat perversely, Deutsche's share price soared 7.5 per cent on the news. "The bad news is out and things can only get better," said Manfred Piontke, banking analyst at Bank Julius Baer in Frankfurt.
Deutsche would not comment on rumours that large-scale redundancies were on the cards at the bank. It said there would be rationalisation and substantial savings, but gave no indication of the extent of any lay-offs. But insiders said that, unlike Swiss rivals UBS and SBC, Deutsche was unlikely to cut back on its investment banking division, which is still seen as a "build" area by company executives.
UBS and SBC, which announced plans to merge last December, are expected to announce details of thousands of redundancies within the next few weeks.
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