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Will Regulators Approve Deutsche's Lower Capital Request?

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Per a Bloomberg’s article, Deutsche Bank (DB - Free Report) is in talks with the German financial regulator Bafin and the European Central Bank (“ECB”) about reducing its common equity tier (“CET”) 1 ratio. The bank aims to deploy freed-up capital toward restructuring moves.

Citing people familiar with the matter the article said that authorities are mostly positive about CEO Christian Sewing’s restructuring plans.

The German lender’s CET1 ratio was 13.7% as of Mar 31, 2019, which is well above the current full-year target of 13% as well as the minimum capital ratio of 11.8%. However, being a big bank, its capitals remain under strict supervision of regulators.

The article said that the ECB requires banks to remain above minimum capital requirement, even during major restructurings due to the risks involved.

As part of its major overhaul, the bank is planning to reduce about 20,000 jobs globally, with majority of cuts in the equities trading business. The reductions will be made over a period of one year across different regions and businesses. The move is expected to help Deutsche Bank save billions that it can use to bolster profitable business lines.

Also, it seeks to hire about 300 relationship and investment managers in wealth management division by 2021 across Europe, America and emerging markets to increase exposure to steadier revenue sources.

Despite various strategies to strengthen financial performance, Deutsche Bank’s profitability is threatened by its involvement in persistent legal hassles and low rate environment in the domestic economy.

Shares of Deutsche Bank have lost 5.6% on the NYSE in the past six months against the industry’s growth of 6.5%.

The stock currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the finance space are HSBC Holdings plc (HSBC - Free Report) , Credit Suisse Group and Banco Santander Brasil SA (BSBR - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for HSBC has been raised 2% for the current year in the past 60 days. The company’s share price has gained 3.6% in the past six months.

Credit Suisse has witnessed slight upward revision in earnings estimates for 2019 in the past 30 days. Its share price has risen 10% in the past six months.

Banco Santander’s shares have gained 5.5% in three months’ time. Its earnings estimates for 2019 have moved up 1% in the past 60 days.

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