(Bloomberg) -- Deutsche Bank AG chief Christian Sewing has signaled he’s ready to move past years of turnaround efforts and consider deals to grow the bank. He’ll probably have to look outside the U.S., since the Federal Reserve views its progress as far from done.

Senior executives at the German lender indicated their interest in buying Wells Fargo & Co.’s custody unit to Fed officials late last year, according to people familiar with the matter. The Fed was opposed to the purchase because Deutsche Bank hadn’t made enough progress in improving controls and compliance, despite being under confidential agreements with the central bank to fix the issues, the people said, asking not to be identified as the talks weren’t public.

The Fed remains opposed to Deutsche Bank making acquisitions in the U.S., the people said, marking another hurdle for Sewing, who’s looking to pivot to growth after years of shrinking the firm and grappling with billion-dollar misconduct fines. While the bank is still struggling with outstanding legal and regulatory issues, it reported its best first half since 2015 on the back of a trading boom.

“After conducting due diligence we determined internally not to submit a complete bid,” a Deutsche Bank spokesman said in an emailed statement. The Fed declined to comment on the discussions, which haven’t been previously reported. Wells Fargo also declined to comment.

A purchase of the Wells Fargo unit would have given a boost to Sewing’s transaction bank, a business he once dubbed the ‘heart’ of his strategy but which has been shrinking as negative interest rates eroded income from lending. It also would have strengthened Deutsche Bank’s U.S. operations. Wells Fargo ended up selling the unit and its roughly 2,000 staff in March to Computershare Ltd. for $750 million. 

The German bank’s leaders are now bracing for possible sanctions and a substantial fine, after the Fed privately told Deutsche Bank that its compliance programs aren’t up to snuff, Bloomberg News reported in May.

Two years ago, the Fed was said to have begun a still-unresolved probe into how Deutsche Bank handled billions of dollars in suspicious transactions from Denmark’s leading lender, Danske Bank A/S, further intensifying one of history’s biggest money-laundering scandals.

The Fed issues aren’t the only regulatory headache for Sewing. Deutsche Bank’s German regulator Bafin has expanded the mandate of the independent anti-money laundering monitor it previously installed. The lender has launched an internal investigation into allegations it mis-sold foreign-exchange derivatives to dozens of Spanish companies. And German and U.S. regulators are probing greenwashing allegations against its asset management arm.

Sewing has reacted by rearranging responsibilities and sacking or re-assigning senior executives. Deutsche Bank has appointed a new head for the anti-financial crime unit, based in the U.S. It has also reassigned oversight over compliance and anti-financial crime to Chief Administrative Officer Stefan Simon, from outgoing risk chief Stuart Lewis.

“We have significantly strengthened our control systems, but there is still work to do,” Sewing told shareholders at the annual general meeting in May. “We are still not fully meeting our regulators’ expectations, nor our own.”

The ongoing inability to mend relations with the U.S. regulators may raise renewed questions about whether the bank’s turnaround could be held back by the U.S. unit.

Deutsche Bank’s headcount there has declined significantly under Sewing, falling 21% from 2017 -- the year before he took office -- to 8,136 last year. 

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