Fitch: German Banks Could Drop Hedge Funds

Feb 13 2013 | 12:48pm ET

German plans to enforce a strict separation of retail banking and investment operations, including hedge funds, could lead German banks to simply abandon the latter.

Germany's proposed new bank rules would require that both secured and unsecured investment activities be ring-fenced from customer assets. By contrast, France, which is working with Germany on the new rules, plans only to force the separation of unsecured activities from customer assets.

The full impact of the German bill remains unclear, including which activities precisely will be prohibited. But whatever form they take, banks may simply choose to forego proprietary trading, high-frequency trading and hedge funds entirely, Fitch Ratings suggests.

"Only a few banks would end up putting trading activities into separate subsidiaries," Fitch's Michael Dawson-Kropf told Bloomberg News. The rest would simply give up "restricted activities rather than incur the costs of separation, as the affected businesses make relatively small contributions to earnings."

The draft bill, approved by the cabinet last week, would affect between 10 and 12 banks, most notably Deutsche Bank.


In Depth

Dillon Eustace: The Advantages of ICAVs

Feb 11 2016 | 7:51pm ET

As the growth of alternative investment vehicles continues, global asset managers...

Lifestyle

Citadel's Ken Griffin Donates $40M To New York's Museum of Modern Art

Dec 22 2015 | 9:23pm ET

Citadel founder Ken Griffin has donated $40 million to New York’s Museum of Modern...

Guest Contributor

Hedging Against Reputational Risk in the 21st Century

Feb 12 2016 | 7:18pm ET

For investors, the first step in researching a new fund or manager is to google...