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Deutsche Bank is shuttering its equities sales and trading business, while trimming its "rates division". It will also create a "bad bank" for €74 billion ($83 billion) in assets that eat up too much capital.

Source: https://edition.cnn.com/2019/07/08/investing/germany-deutsche-bank-restructuring/index.html

What is a "rates division"?

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https://www.mergersandinquisitions.com/rates-trading-desk/

What is the Rates Trading Desk?

Q: Before we get started, can you explain what the “rates trading desk” does and how it’s different from other areas in FICC Trading, such as credit trading?

“Cash” here means sovereign bonds, while “derivatives” means interest rate swaps and futures, and “exotics” means structured products based on rates, options on swaps, and others.

Of those, we focus on making markets in sovereign bonds and interest rate derivatives.

Interest rate derivatives are financial instruments whose values increase or decrease based on movements in interest rates.

The simplest type is the “vanilla” interest rate swap, where one party receives payments based on a floating interest rate and pays the counterparty based on a fixed interest rate.

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DB's own press release states

In addition, the bank plans to resize its Fixed Income operations in particular its Rates business and will accelerate the wind-down of its existing non-strategic portfolio. In aggregate, Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by approximately 40%.

This appears to be a specialty trading desk in a subset of fixed income. To summarize in one sentence, it trades interest rate derivatives and makes decisions based on high level, macroeconomic theories and information (government/economy level instead of specific issuer)

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Many large investment banks have interest rate trading desks that trade credit products and derivatives (government bonds, debt, swaps, fixed income futures, cross currency strategies, caps/floors, etc.

Due to low interest rates in euro countries, Deutsche Bank's income from these products decreased dramatically. Therefore, they are cutting back on this unit as well as other divisions.

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I read "Division" as the business group inside the bank. This division handles Rates.

For example, a bank could have a "Loans" division or even a "Commercial Loans" and "Personal Loans" division.

  • so you mean "interest rates" here? – haile Jul 9 at 13:23
  • That would be a reasonable guess. Without knowing how Deutsche is structured, and especially given that their structure is in German, I'd be reluctant to claim that as 100% factual. – JonBlack Jul 9 at 13:34
  • I think the good takeaway on this is that "Rates" is an adjective to "Division" which is pretty clearly a sub group in the company. When companies restructure they always seem to identify the poorly run divisions and make changes there. – JonBlack Jul 9 at 13:35

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