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08 July 2019 by jbchevrel

Deutsche Bank was at focus, following the restructuring news over the weekend. The name opened tighter in CDS (SLAC -8bp SUB -21bp) and stronger in stocks (equity up 4%+ this AM). Nevertheless, the moved was faded throughout the session, with market participants better buyers of protection, taking CDS back to flat and even wider, almost symmetrically to daily tight. In parallel, the stock went from 4%+ up to -5.5% down at the European close. In cash space, the perp lost 2.5c on the day, a tad more than 3c drawdown during the session. As widely expected, updated restructuring plan details were released to the market. The plan looks bigger than expected (complete exit of Equity S&T and trading businesses seeing RWAs cut c40% / CIR target for 2022 is ambitious: 70% from 93% in 2018), although future ROTE targets in relation to the plan somehow disappointed analysts and market participants (ROTE targets: ‘only’ 8% at the group scale and 6% at the IB by 2022). Concerns over capital remain. As widely expected, DB is not raising equity and plans to lower its minimum CET1 ratio (to 12.5% from 13.0%). The argument is that because DB will bear less risk going forward, it will need less of a capital buffer. There was some decompression between the SLAC and the SUB CDS (on the 5y: +5bp on a 1:1 basis). NB: the displayed contract is DB senior (preferred) 5y.