Deutsche Bank: shrink to fit Taking inspiration from the adage that small is beautiful, Deutsche Bank is to shrink itself. The bank is to cut its assets by €250bn , or 16 per cent of the total, in an effort to fulfil new leverage requirements. It is a hefty cut. In a similar move, Barclays is to cut up to £80bn of assets, or just 5 per cent of its total. So Deutsche Bank will certainly be smaller. And if it can deliver what it promises, it will also be more beautiful. The assets to go are a mixture of lending facilities, non-core assets, trading inventory and cash. Deutsche Bank says the impact on profits will be manageable. The reduction is likely to cut about €300m out of pre-tax profits, which were €6.2bn last year. A 5 per cent fall in earnings might be a fair price to pay to lift the capital adequacy cloud. However it is concerning that Deutsche has only taken action in response to questions on leverage. If it has capital-intensive assets that are contributing little to profits, it should have got rid of them long ago in the name of shareholder value. The asset reduction, combined with April's €3bn equity raising, show Deutsche is finally taking capital concerns seriously. There may be more to do, however. Analysts at Berenberg estimated last month that the bank needs another €16bn of capital. And Tuesday's second-quarter results gave little encouragement. Pre-tax profits were a fifth below the same quarter last year, hit by a €630m litigation provision and a lacklustre showing from some parts of the investment bank. The former is (hopefully) a one-off, and the latter is down to Europe's moribund economies, but whatever the reason such numbers do little to help the capital position. All of which helps to explain why, rather than jumping on news of the asset reduction plan, the shares fell 4 per cent on Tuesday. Deutsche will be smaller, yes, but its beauty might take some time to mature.