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Sal. Oppenheim investment bank proves hard sell

Source: Reuters - Tue 17th Nov 2009

Deutsche Bank may have to wind down or carve up investment banking operations at newly acquired wealth manager Sal. Oppenheim after attempts to sell the business to Australia's Macquarie ran aground.

Selling the business as a whole was never going to be easy,analysts said, but Macquarie's bid below book value shows how little appetite there is for investment banks as regulators and politicians seek to impose tougher rules on the once freewheeling sector.

The previous owners of Luxembourg-based Sal. Oppenheim on Monday rejected Macquarie's offer for the business as too far below the asking price of 200-300 million euros ($300-450 million), sources familiar with the matter told Reuters.

A Sal. Oppenheim spokesman on Tuesday cited differences ofopinion between the sellers and potential buyer about the"valuation of customer relationships".

The collapse of the talks diminished chances of a rapid sale of the investment bank which employs around 450 staff.

Merck Finck analyst Konrad Becker suggested one option could be to phase out Sal. Oppenheim's investment bank.

"Finally Deutsche Bank may decide to terminate these operations to avoid the burdening of its equity. We expect costs to terminate Sal. Oppenheim's investment banking to be manageable" he said in a note to clients.

LBBW analyst Olaf Kayser called the stalled sale "slightly negative for Deutsche Bank because it delays the planned restructuring process of Sal. Oppenheim", but added it should not weigh heavily on Deutsche Bank's share price. 

Deutsche Bank shares eased 0.9 percent by 1325 GMT, in line with the DJ Stoxx European banking sector index .SX7P.

One source close to the deal said Sal. Oppenheim and Deutsche Bank, which is in the process of buying the Luxemburg-based group's wealth management business for 1 billion euros, may launch an auction for the investment bank.

A sale would avoid the costs of winding down the investment banking operations.

But after Italy's Mediobanca dropped out of the hunt last month and Macquarie refused to meet the sellers' price, it remained unclear whether an auction would have much more success in divesting the operations.

One person close to the talks said it hardly seemed possible to find another buyer by the time Deutsche Bank is supposed to close its 1 billion euro purchase of Sal. Oppenheim's wealth management business in the first quarter of 2010.

Deutsche Bank's purchase marked the largest wealth management transaction in Europe this year and will almost double Deutsche's client assets under management in private banking to around 300 billion euros.

It also reduces Deutsche's dependence on income from investment banking by adding the lustre of a blue-blooded banking brand that has been serving the ultra-wealthy since 1789 but which posted its first post-war loss last year.

The financial crisis and risky investments such as a stake of almost 30 percent in now-insolvent German retailer Arcandor hit Sal. Oppenheim's 2008 results.

The investment bank, led by partner Dieter Pfundt, has recovered from last year's losses and is now profitable in allits segments, sources close to Sal. Oppenheim said.

According to a memo Pfundt sent to staff, the business generated gross revenue of 26 million euros in October, the highest in two years.

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