FRANKFURT, June 16 (WNM/Reuters) - Deutsche Bank is planning to overhaul its trading operations by creating a “bad bank” to hold tens of billions of euros of assets and shrinking or shutting its U.S. equity and trading businesses, the Financial Times reported on Sunday.

The FT writes:

Deutsche’s equity and rates trading businesses outside continental Europe will be severely shrunk or closed entirely as part of the revamp, although the final decision is pending, according to four people briefed on the plan. Managers are also set to unveil a new focus on transaction banking and private wealth management. The proposed bad bank, which is known internally as the non-core asset unit, will comprise mainly of long-dated derivatives, the people said.

The final scale of the non-core unit has not been decided and the number “continues to oscillate”, but executives are discussing at least €30bn of risk-weighted assets with an eventual size of €40bn to €50bn most likely, two of the people said. At the upper end, it would account for 14 per cent of Deutsche’s balance sheet. “The cuts need to be radical,” said one senior figure at the bank. “It makes sense for us to put all these long-term, nil-revenue assets in a non-core unit.” The person added: “We now have the capital and liquidity freedom to do what needs to be done; we couldn’t have acted decisively much sooner because we needed to have built up those buffers.”

In 2016, the IMF found that Deutsche Bank is the bank that poses the greatest risk to the global financial system: "Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country."