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Deutsche Bank to close US OTC clearing business

The bank's exit could stoke further fears of consolidation in the swaps clearing market, with over half of all business concentrated with the top three dealers.

By Joe Parsons joe.parsons@strategic-i.com February 09, 2017 10:51 AM GMT

Deutsche Bank will shut its US swaps clearing business with immediate effect, The TRADE understands, as the German bank continues to shrink its investment banking division.

It will continue clearing listed derivatives in the US and remains committed to its prime brokerage business.

According to latest figures from the CFTC, Deutsche Bank held only $461 million in client cleared collateral for swaps at the end of last year, in comparison to $15.5 billion currently held at Citi and $12.2 billion at Credit Suisse.

Deutsche Bank declined to comment.

It has become the latest swaps dealer to close its US clearing business, which include Nomura, RBS, Jefferies and State Street.

Deutsche Bank operated its US swaps client clearing business since 2011 following the onset of the Dodd Frank Act which mandated central clearing of OTC derivatives.

However it has since been plagued by balance sheet pressures and regulatory penalties, forcing it to review its core businesses and pull-back from certain areas.

Last year the bank’s CEO, John Cryan, said it would “selectively reinvest” in less capital intensive businesses, and would reduce its investment banking and global markets clients by up to 50%.

As part of the bank’s Strategy 2020 it also decided to shut down its single-name uncleared credit default swap (CDS) and higher risk-weighted securitised trading desks.

Deutsche Bank’s exit from US swaps clearing could stoke further fears of consolidation of OTC derivatives clearing in just a handful of dealers.

With only 18 dealers left to clear swaps, Citi, Morgan Stanley and Credit Suisse control more than 50% of all client cleared collateral for swaps combined, and the top five banks controlling up to 75% of the business.