UPDATE 1-Deutsche Bank CEO says high profits now trigger 'red flags'

(Adds CEO comments on Postbank)

FRANKFURT, May 31 (Reuters) - Deutsche Bank scrutinizes high returns from any of its businesses to avoid the conduct issues that led to a series of scandals which contributed to a record 2015 loss, its chief executive said on Tuesday.

“We are focusing on new products that actually generate reasonably good returns on regulatory capital... We try to target 12 to 20 percent return on risk weighted assets,” Chief Executive John Cryan said on an investor call.

“Why do we cap it at 20? 20 is a red flag, because if you are making too much money you need to check if it is still the right thing to do.”

That contrasts with a target of more than 25 percent in return on equity that former Deutsche Bank CEO Josef Ackermann had upheld during his tenure - a time when the investment banking industry boomed and regulation was less stringent.

Deutsche Bank is undergoing deep restructuring, hamstrung by having to pay out billions of dollars of fines to end a slew of legal rows. Its shares are down 40 percent over the last year.

Cryan said that Deutsche Bank had made progress in changing staff conduct since he took the helm in July 2015, completely revising the incentive systems, and laying off employees.

Germany’s flagship lender will complete two thirds of its restructuring by the end of this year, Cryan said, adding it hoped to settle three to four big litigation cases, sometime before or after the summer.

“We totally changed our approach towards litigation. We have gone for full transparency, being extremely accommodating with the enforcement authorities and the regulators,” he said.

At Deutsche Bank’s annual general meeting earlier this month, a narrow majority of shareholders voted against launching a special audit into how top managers handled the bank’s litigation cases.

As part of its restructuring, Deutsche Bank has terminated its relationships with more than 750,000 clients, Cryan said.

After closing 40 retail branches in Spain and Poland and likely reaching an agreement with German works councils on closures in Germany within the next two months, the revamp of retail activities in Europe will be about done, he said.

Cryan said the bank continues to look into divesting its German retail bank Postbank, adding an initial public offering was seen as an unattractive option for shareholders right now.

“We are either hoping for market recovery, or are looking for a slightly more creative way to exit our position (in Postbank),” he said without elaborating further.

“We don’t really need to sell until 2018”, he said, adding that the main goal of a sale would be to free up regulatory capital. (Reporting by Arno Schuetze; Editing by Alexandra Hudson)