Deutsche Bank, Facing Challenges, Says It’ll Sell Abbey Life Unit

Deutsche Bank, Facing Challenges, Says It’ll Sell Abbey Life Unit

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Deutsche Bank’s headquarters in Frankfurt.

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Kai Pfaffenbach/Reuters

LONDON — Deutsche Bank said on Wednesday that it had agreed to sell its Abbey Life insurance business, part of efforts to simplify the bank’s structure and improve returns, amid concerns that it may be forced to raise additional capital to resolve a dispute with American authorities.

Worries over a potentially large penalty from the United States Department of Justice, over the selling of residential mortgage-backed securities, sent the lender’s stock to a multidecade low this week. The bank, Germany’s largest, has faced a series of challenges in recent months, from a poor financial results to a failing grade in a banking stress test.

John Cryan, the bank’s chief executive, is seeking to engineer a turnaround, while trying to streamline its investment bank in a difficult market environment and address historical issues that continue to drag down performance.

The latest in those efforts was the sale of Abbey Life to a subsidiary of Phoenix Group Holdings, which specializes in buying closed life insurance pools and pension funds, for 935 million pounds, or about $1.2 billion.

The transaction will result in a pretax loss of 800 million euros, or about $899 million, and is ultimately expected to help the capital position of its Deutsche Asset Management business.

“We are pleased to have reached this agreement with Phoenix Group, a specialist life fund provider which is well qualified to serve Abbey Life policyholders,” Mr. Cryan said in a news release. “We continue to build a simpler and better Deutsche Bank.”

Abbey Life, a British insurer, has been closed to new business since February 2000, but it accepts increases on existing policies, and new members to some pre-existing occupational pension plans. The company was founded in 1961.

At the end of 2015, it had assets valued at £10.2 billion, according to its website. Abbey Life has about 735,000 policyholders, according to Phoenix.

Phoenix agreed in May to acquire the SunLife and Embassy pension and investment business in Britain from the French insurer AXA, which is exiting the life insurance and savings market in Britain.

The Abbey Life transaction is subject to regulatory approval and expected to close by the end of the year.

As part of his efforts to turn Deutsche Bank around, Mr. Cryan announced plans last year to eliminate as many as 35,000 jobs, shutter operations in 10 countries and cut the number of investment banking customers in half.

Despite those steps, the lender posted a huge loss in 2015 after it took €5.2 billion in charges related to legal costs for past wrongdoing. It then endured a 58 percent plunge in profit in this year’s first quarter.

The Federal Reserve also gave a failing grade to its United States subsidiary in stress tests this year.

This month, the bank disclosed that the Justice Department was seeking $14 billion in penalties as part of an investigation of the bank’s underwriting of residential mortgage-backed securities before the financial crisis. The amount of penalties sought could change as negotiations progress.

Following a media report that the German government had ruled out providing aid to the lender, Deutsche Bank denied on Monday that it had sought a bailout or asked Chancellor Angela Merkel to intervene in the mortgage issue with the Justice Department.

Mr. Cryan also told a German newspaper that the bank had no plans to raise new capital.

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