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Exclusive: Deutsche Bank's problem derivatives cloud recovery - sources

NEW YORK (Reuters) - Deutsche Bank AG’s (DBKGn.DE) turnaround strategy rests in large part on shedding 288 billion euros of unwanted assets. Three bank insiders said it will take years, tying up capital that could have generated income of 500 million euros ($557 million) a year.

The opportunity cost of unloading the assets, which has not been previously reported, underscores the challenges facing Chief Executive Christian Sewing as he attempts to turn around the bank and restore confidence among investors who have seen the value of their shares decline by 75% in the past four years.

Sewing said earlier this month that Deutsche, Germany’s largest lender, would set up a bad bank to house the assets, which include equity, credit and interest-rate derivatives. The bank said it wants to offload most of its derivatives by 2020. Executives managing the book can either sell positions or allow them to gradually wind down over time, depending on which is more profitable.

The bank is planning an auction of its short-dated equity derivatives book, having already received “significant expressions of interest,” the sources familiar with the matter said. However, its long-dated interest rate and credit derivatives are expected to be much harder to offload, the sources said.

Deutsche Bank has held on-and-off talks with potential buyers of some of those assets over the past two years, three people said. The sales did not happen because the prices offered would have resulted in hundreds of millions of euros in losses for the bank, they said.