It looks like Deutsch Bank is making another bold move to stave off irrelevancy, and it's a...bold one.
Per S&P Global:
Deutsche Bank AG is planning to follow the lead of a number of U.S. banks and invest in senior-most CLO tranches as a way to better manage excess liquidity and boost profitability.
The bank in recent weeks was a buyer of a AAA CLO tranche with a shorter reinvestment period that was also structured to comply with risk retention rules in the EU, a number of sources said. Going forward, the bank’s purchases will continue to be focused on shorter-duration CLOs, sources added. A spokesperson for Deutsche Bank declined to comment.
Obviously, Deutsche is looking to massage the steady return/low-risk margin by going with steering wheel CLOs, and that's a good instinct at this point in the German lender's slow agonizing death. But it also makes us chuckle to think that Deutsche will be looking to avoid the kind of loans that Deutsche has been making for years [see: Kushner, Jared and and Trumps, All of The].
But overall, we can't get too snarky on those wild boys in Frankfurt. They've been looking to make their excess liquidity work for them for a while now, and AAA CLOs are as risk-free as risky instruments can be. It would take an unprecedented shift in our collective understanding of how debt works systemically for Deutsche to lose money on these things. For instance, we'd have to see batshit behavior like a bank lending money to someone so that they could pay back that bank for a separate earlier loan that the same lender defaulted on and then sued the bank for trying to collect.
So, yeah, totally safe.