By Paritosh Bansal and Kathrin Jones
NEW YORK/FRANKFURT (Reuters) - Guggenheim Partners' talks to buy a full range of asset management businesses from Deutsche Bank (DBKGn.DE) for 1.4 billion euros ($1.81 billion) have fallen apart after the German lender withdrew an offer to guarantee the unit's revenue, a source familiar with the situation said.
Deutsche and Guggenheim had been in exclusive talks since February on the sale of a clutch of asset management businesses, which the German lender is selling in light of new regulation, rising costs and growing competition that is expected to weigh on future earnings.
Germany's biggest lender said negotiations would now focus solely on the possible sale of RREEF, Deutsche's global alternative asset management business. Deutsche said it would also continue to evaluate these businesses and was committed to maintaining the stability of its investment teams and client service in the meantime.
But new details of negotiations with Guggenheim show that the lender has had a hard time selling the businesses. The guarantees also show that the German lender is keen to sell the business, which could make it harder to obtain the price it wants.
Deutsche Bank said in a statement, "The bank and Guggenheim Partners mutually agreed to end exclusive negotiations about a potential sale of DWS Americas, the mutual fund business in the Americas; DB Advisors, the global institutional asset management business; and Deutsche Insurance Asset Management, the global insurance asset management business."
It declined to comment further on the reasons for the breakdown in talks.
When Deutsche and Guggenheim entered into the exclusivity agreement, the German lender agreed to a deal structure where it would guarantee any shortfalls in revenue up to 800 million euros for five years, off a revenue baseline of 1.2 billion euros, the source said.
Guggenheim asked for the guarantee in part because it feared client attrition from some businesses in the United States, the source added.
But Deutsche may have misjudged the impact such a guarantee would have on how it would be able to treat a gain from the sale of the business. Initially the lender believed the sale would still add to its capital, but two weeks ago the lender told Guggenheim it realized it would not and the guarantee was off the table, the source said.
The move prompted Guggenheim to lower the price it had offered for the business, according to the source, who added that it was unclear if Guggenheim and Deutsche will be able to reach a deal even for RREEF.
The RREEF business has around 47 billion euros ($61 billion) in assets under management, making it only around one-tenth the size of the businesses Deutsche had put up for sale.
New York based-Guggenheim, a privately held financial services firm that oversees more than $125 billion, declined to comment.
Deutsche had said in November it was considering selling several global asset management businesses. The businesses that Deutsche put up for sale had not been major money-makers for the bank in recent years and they lack the heft of rivals in asset management, where scale counts.
Sources close to the sale process told Reuters in early February that Deutsche had wanted to sell the operations as one unit, possibly fetching around 1.5 billion euros, and that interested parties other than Guggenheim had been interested only in specific pieces of the business.
The short list of potential bidders had included Ameriprise Financial (AMP.N), Macquarie (MQG.AX) and State Street (STT.N), the sources said at the time.
Not included in Deutsche's sale plan are private wealth management or Deutsche's DWS franchises in Germany, Europe and Asia, which are seen as part of the bank's retail palette.
(1 euro = $1.29)
(Additional reporting by Jonathan Gould, Alexander Huebner and Edward Taylor; Editing by Mark Potter and Matthew Lewis)