Ho Ho Ho It's magic: Deutsche Bank, Market Cap $14B to Spin Off $50B in assets


Deutsche Bank, with a market cap of under $14 billion looks to spin off $50+ billion in allegedly productive assets.

I am scratching my head a bit over this idea. From the expression on CEO Christian Sewing's face, he is too.

Please consider Deutsche Bank Plans Radical Overhaul With €50bn Hived Off to 'Bad Bank'.

Deutsche Bank has drawn up plans for a radical restructuring which will involve the creation of a “bad bank” to hold tens of billions of euros of toxic assets and a round of severe cuts to its investment banking operations, according to reports.

The bad bank would house or sell assets valued at up to €50bn (£45bn) comprising mainly of long-term trades that have been a major drag on the struggling bank’s balance sheet, the Financial Times reported, citing four people briefed on the plan.

Deutsche Bank has been beset by a series of crisis in the past year including money laundering allegations, failed merger talks with Commerzbank and concerns about the lender’s dealings with Donald Trump and his son-in-law Jared Kushner.

Derivatives Spin Off

If the headline sounds preposterous, the derivatives details as described by the Financial Times are even more amazing.

"While the derivatives destined for the non-core unit still provide some cash flow, all the profit on the deals — and therefore the associated bonuses for those who arranged them — were booked up-front."

Supposedly these $50 billion in derivative assets are actually productive, except for the fact that Deutsche Bank booked the profit up front.

Thus, the proposal is to spin off productive assets to the "bad bank" keeping what?

The Financial Times explanation is to keep its better bond business.

To top it off, Deutsche Bank supposedly has €260 billion in cash and liquid securities on hand.

Magic Steps Explained

  1. Deutsche Bank will spin off $50 billion in productive assets to a bad bank
  2. Deutsche Bank will keep its better performing assets
  3. Deutsche Bank has €260 billion in cash and liquid securities on hand
  4. Deutsche Bank has a market cap of $14 billion


Bear in mind that deposits are liabilities. Banks pay interest on them. But in the topsy-turvy EU world, interest rates are negative. If so, the bank is gaining by holding deposits.

If the liquid securities are government bonds, those are highly likely to have a negative yield and the bank is losing on them. This is the foolishness of the ECB's negative interest rate policy.

The entire impact of item 3 rages from a likely a big nothing to a tiny gain or loss.

As for point one, even if the asset is performing, excess profits were booked on it. Spinning it off should result in a charge, even if someone else is willing to deal with the derivatives mess.

This spin off story makes perfect sense, in some magical alternate universe somewhere.

Mike "Mish" Shedlock

Comments (41)
No. 1-20

I guess all I want to know is: (1) will this blow up? and (2) how do I profit from it?


We did something similar in the US about 10 years ago. Except banks spun off their 'productive assets' to the FED.


Does that look on his face mean he is trying to think through the most perplexing riddle of his life, or are his nuts stuck in a vice? The answer is probably both.

Ted R
Ted R

Enron used to do these kind of things. LoL. Another bank with lots of toxic and bad assets trying to unload their crap on whoever is stupid enough to take it. Pitiful and desperate at the same time. Looks like 2007 is happening again.


I do think this is POSSIBLE. Here is how it may work: Entity #1: Good bank with all the good assets, etc. Worth 50 billion dollars. Entity #2: Bad bank saddled with all debts, etc. Worth negative 36 billion dollars.

After the spin-off of good bank, the old entity essentially worth nothing, but the spin-off entity still worth 50 billion dollars.

If this is allowed, then the stock should go to 50 billion dollar first, and then split into two entities, but debt holders will SUE the good bank for their money, unless of course, a government bailout comes in, and save everyone from the negative 36 billion dollars.

This is not just for Deutsche Bank. If you look at Goldman Sachs, their book is so leveraged that they can probably spin off 10 different entities worth various billion dollars, and still have spare ones.