Deutsche Bank explored Wells Fargo custody deal ahead of Fed snub

(Bloomberg) – Deutsche Bank AG chief Christian Sewing has indicated that he is ready to end the turnaround efforts of years past and consider deals to expand the bank. He will likely have to look outside the United States, as the Federal Reserve considers its progress far from over.

Senior executives at the German lender expressed interest in buying the custody unit of Wells Fargo & Co. from Fed officials late last year, according to people familiar with the matter. The Fed opposed the purchase because Deutsche Bank had not made enough progress in improving controls and compliance, despite being under confidential agreements with the bank central to resolve the issues, people said, asking not to be identified as the talks were ‘. t public.

The Fed remains opposed to Deutsche Bank making any acquisitions in the United States, people said, marking another hurdle for Sewing, which is looking to turn to growth after years of downsizing and struggling. from fines of $ 1 billion for malpractice. While the bank continues to grapple with outstanding legal and regulatory issues, it recorded its best first half since 2015 thanks to a business boom.

“After doing our due diligence, we decided internally not to submit a full offer,” a Deutsche Bank spokesperson said in an emailed statement. The Fed declined to comment on the talks, which had not been previously reported. Wells Fargo also declined to comment.

A purchase of the Wells Fargo unit would have given a boost to Sewing’s transaction bank, a company he once dubbed the “heart” of his strategy but which has declined as negative interest rates have fallen. eroded loan income. It would also have bolstered Deutsche Bank’s US operations. Wells Fargo ended up selling the unit and its approximately 2,000 employees in March to Computershare Ltd. for $ 750 million.

German bank executives are now bracing for possible sanctions and a substantial fine, after the Fed privately told Deutsche Bank its compliance programs were falling short, Bloomberg News reported in May. .

Two years ago, the Fed reportedly opened a still unresolved investigation into how Deutsche Bank handled billions of dollars in suspicious transactions from Denmark’s main lender, Danske Bank A / S, further escalating one of the biggest history money laundering scandals.

The Fed’s problems aren’t the only regulatory headache for Sewing. Deutsche Bank’s German regulator Bafin has broadened the mandate of the independent anti-money laundering monitor he previously installed. The lender has launched an internal investigation into allegations that it wrongly sold foreign exchange derivatives to dozens of Spanish companies. And German and US regulators are investigating allegations of greenwashing against its asset management arm.

Sewing responded by reorganizing responsibilities and laying off or reassigning senior executives. Deutsche Bank has appointed a new head for the United States-based Financial Crime Unit.

“We have significantly strengthened our control systems, but there is still work to be done,” Sewing told shareholders at the annual general meeting in May. “We are still not fully meeting the expectations of our regulators, nor our own. “

The continued failure to restore relations with US regulators could raise new questions about whether the bank’s recovery could be held back by US unity.

Deutsche Bank’s workforce there has shrunk significantly under Sewing, dropping 21% from 2017 – the year before he took office – to 8,136 last year.

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