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Germany likes proposal to create smaller Deutsche Bank, officials say

A man enters the Deutsche Bank AG office building on Wall Street in New York, U.S., on Monday, Oct. 17, 2016.

Mark Kauzlarich/Bloomberg

Germany would welcome a smaller Deutsche Bank AG as a way to reduce the lender's capital requirements, three government officials said.

Chancellor Angela Merkel's government views favourably a structural overhaul that may include shrinking the U.S. operations and sees reducing the investment banking business as a viable way to curb risk and capital requirements, said the officials, who asked not to be identified. A German Finance Ministry spokesman declined to comment. Pulling back in the United States is one option being considered as part of Deutsche Bank's broader strategy review, said two others familiar with the lender's plans.

"Since the outbreak of the financial crisis, the goal of our regulation has been to reduce the risks on the balance sheets of banks," said Antje Tillmann, a senior lawmaker on the German parliament's finance committee for Ms. Merkel's Christian Democratic Union, in an e-mail to Bloomberg. "Measures that support this goal, but don't harm the export-oriented German economy, should be openly discussed."

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Deutsche Bank said last month that the U.S. Justice Department requested $14-billion (U.S.) to settle a probe tied to residential mortgage-backed securities, a figure that triggered a selloff in the shares and fuelled investor concerns about the bank's financial strength. The bank had put aside 5.5 billion euros ($6-billion) for litigation at the end of June. Chief executive officer John Cryan, who's been cutting jobs to lower costs, has said he doesn't plan to raise capital and expects U.S. authorities to lower their initial demand.

Cutting back the U.S. business would mainly affect the investment bank, said one of the people, because of the capital it requires. No final decisions have been made and discussions about the U.S. business continue, according to the people

German newspaper Die Welt am Sonntag reported over the weekend that Deutsche Bank may be forced to shrink its U.S. activities as part of a deal with the Department of Justice. While talks with U.S. authorities may include that topic, a U.S. retreat hasn't been mandated so far, said one of the people.

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