If running a global bank is complicated, cutting one back is even more difficult.
Deutsche Bank (DBKGn.DE) faces a long and costly battle, analysts say, to sell Postbank (DPBGn.DE) and pare investment banking, the new strategic goals it outlined late on Friday.
While the bank is due to publish results on Sunday, investors will get no details on its overhaul before Monday at a news conference. The scope of the challenge is already clear, however.
Germany's flagship lender comes late to restructuring after European rivals such as Barclays (BARC.L) and Credit Suisse (CSGN.VX) already slashed their global franchises years ago, cutting jobs and hiving off businesses.
Deutsche will face an especially difficult challenge in selling off Postbank without having to post losses.
Deutsche aims to cut its stake to below 50 percent next year from 94 percent by selling shares on the stock market and then to reduce its holding to zero in the medium term, a source close to the matter said on Saturday.
But a battle is already building over the conditions for a sale as the government signals that big layoffs at Postbank should be banned from any deal.
"We're worried about jobs at Postbank," Carsten Schneider, finance expert and deputy SPD parliamentary floor leader, told Reuters.
"The policy goal is that it won't be leveled following a sale to an investor. Deutsche Bank has a social-political responsibility here that extends beyond its economic interests."
Postbank could fetch close to 3.6 billion euros ($3.9 billion) if it sells for a multiple of 0.8 times a book value of 4.5 billion euros, according to analysts' calculations. That points to hefty losses unless the bank can find a strategic buyer willing to pay a premium.
Deutsche Bank had spent around 6 billion euros ($6.5 billion) to purchase Postbank in stages starting in 2008.
Postbank serves 14 million clients from 1,100 branches integrated into the postal system. Deutsche's own brand serves some 8.5 million retail clients through some 730 branches.
"With unions seeking a 5 percent wage increase and job security, it's not obvious Deutsche Bank has easy levers to pull fast," analyst Huw van Steenis at Morgan Stanley wrote in a recent note.
The group may go further than just selling Postbank to reduce its activities in retail, a low-profit battlefield in Germany dominated by highly competitive savings and cooperative banks.
"We're also looking at them to reduce the scope of their European retail operations, preferably to zero, and to trim back the residual German retail operations," said Omar Fall, equity analyst at investment bank Jefferies.
Deutsche Bank runs retail banking operations in half a dozen countries including Italy, Spain and Poland, with some 830 branches and 5 million customers altogether.
The division contributed 753 million euros to the group's pretax profit in 2014, according to a JP Morgan report. Citibank calculates that Deutsche could sell the division for little more than 2.8 billion euros.
THE HARDER THEY FALL
Nor will it be easy to trim 150 billion to 200 billion euros in assets, a sum expected by analysts, from its investment bank. Such a move would strengthen the ratio of its capital to its assets, which is a measure of financial stability that is increasingly important to regulators.
The bank has already pared business lines such as making markets in U.S. commercial paper and in single-name credit default swaps to get rid of balance sheet burdens. Exiting other areas such as long-term repurchase agreements and interest rate swaps could be costly if the bank sells its positions at a loss.
"It's going to be decisive how much investment banking it cuts and which markets it withdraws from," said analyst Dirk Becker at brokerage Kepler.
Deutsche needs to pull out of prime brokerage and any high volume business where margins are thin and capital requirements are high, he said.
"In investment banking, the bank needs to get out of anywhere it's not earning money," he said.
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