Among the thousands of people at Deutsche’s investment bank, credit traders have traditionally ruled the roost. It’s the credit traders, after all, who run Deutsche’s best-ranked business and who historically generated big profits (alongside big losses in the financial crisis).
Times have changed, however. Nowadays, employees at Deutsche’s investment bank might want to give a little love to their colleagues who’ve been hived off into a whole new division: the forsaken traders in the capital release unit (CRU). JPMorgan says it’s they who are now crucial to Deutsche Bank’s future.
The capital release unit made a loss of €1bn in the third quarter and €2.4bn in the first nine months of this year. In a note on last week’s DB results, JPMorgan banking analyst Kian Abouhossein notes that Deutsche’s CRU also made €223m in ‘negative revenues’ in Q3, while one year previously the comparable trading books achieved positive revenues of €459m. The bank said there were good reasons for this, including hedging and de-risking activities, €19m in debt valuation adjustments and €81m due to an ‘update in valuation methodology.’ Net of ‘liquidity and other funding costs’, DB said operating revenues in the unit were close to zero. However, with costs of €790m in the third quarter alone, the CRU is still running at a considerable loss.
Abouhossein’s fear is that these losses will continue. He forecasts an ongoing risk of €100m of…