Deutsche Bank plans to write down the value of Postbank by about a third, ahead of a planned sale of the retail unit as part of a strategic overhaul, two people familiar with the matter said.
Deutsche Bank will cut the book value of Postbank to 2.8 billion euros ($3.15 billion) because the current book value of 4.5 billion euros is seen as unachievable in either an initial public offering or a sale, the sources added.
"Most retail banks trade at 0.5-0.6 times book," an investment banker specialising in financial institutions said, adding the magnitude of the writedown made sense.
Deutsche Bank told Reuters it would make any writedowns on Postbank when it was close to selling, which would depend on the market at that time, meaning it is unclear when the writedown will show up in the bank's results.
"It is too early to speculate about potential outcomes," it said in e-mailed comments.
Shares in Germany's biggest lender are down around 35 percent since the start of the year, leading a slump across the European financial sector, as investors worry about how banks can make money in the face of a deteriorating global economic outlook and negative interest rates.
Last month it posted its biggest annual loss on record, hit by the costs of restructuring its investment bank and setting aside more money to cover litigation costs.
Deutsche Bank decided to divest Postbank, which has assets of 152 billion euros, in 2015 to cut its balance sheet. The move should also help meet regulators' capital targets and bring down Deutsche Bank's leverage ratio, which currently stands at 3.5 percent, lagging many of its peers.
The decision to divest Postbank is an about-face from trying to balance Deutsche Bank's volatile investment banking income with more stable revenue flows from retail banking.
Deutsche Bank agreed to buy Postbank, which now has 14 million customers and employs 15,000 staff, in 2008. Spreading the purchase over several years, it paid about 6 billion euros for Postbank.
But Postbank never met Deutsche Bank's expectations, prompting a re-think when regulators tightened rules, preventing retail deposits being used for investment banking activities.
Deutsche Bank said last month that a divestiture may take longer than expected but would be carried out by 2018 at the latest.
However, Deutsche Bank has actively shopped Postbank to potential Asian buyers and has received several expressions of interest from Chinese lenders who are interested in its small and medium sized company "Mittelstand" franchise, several people familiar with the matter said.
Deutsche Bank, which declined to comment on possible Asian bidders, is expected to get Postbank ready for divestment by the third or fourth quarter by cancelling an agreement which allows it to control the unit's strategy and tap into its cash flows, and by drafting a prospectus.
It will only proceed with a deal when market conditions are favourable or a high enough offer arrives, the sources said.