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Deutsche Bank (DB) Asked by ECB to Maintain Higher Capital

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Deutsche Bank Aktiengesellschaft (DB - Free Report) needs to maintain higher capital, as required by the European Central Bank (“ECB”). The ECB has been pushing banks to reduce the risks that they face in the leveraged finance business.

Thus, following the 2022 Supervisory Review and Evaluation Process (“SREP”), the ECB has asked Deutsche Bank to maintain a common equity tier 1 (CET 1) capital ratio of at least 10.55%, on a consolidated basis, from Jan 1, 2023. This is up from the 10.43% required as of Sep 30, 2022.

The new CET 1 capital requirement comprises the minimum Pillar 1 requirement of 4.50%, the Pillar 2 requirement of 1.52%, the capital conservation buffer of 2.50%, a countercyclical buffer of 0.03% and the requirement arising from the maximum of the buffers from Deutsche Bank’s designation as a Global Systemically Important Institution of 2%.

Deutsche Bank stated, “The increase is driven by the ECB’s newly introduced separate assessment of risks stemming from leveraged finance activities.”

Notably, the requirement sets the level below which DB would be required to calculate a maximum distributable amount (MDA). The MDA is used to determine restrictions on distributions in the form of dividends on CET 1 capital, new variable remuneration and coupon payments to holders of additional Tier 1 instruments.

The ECB has been complaining that some lenders do not properly grasp the risks they face in the leveraged finance business, which involves financing highly-indebted companies, such as those acquired by private equity firms.

Our Take

Deutsche Bank has been focused on strengthening its capital position by exiting non-strategic businesses and assets. As of Sep 30, 2022, the company’s CET1 ratio was 13.3% (already above the required level). Also, the company’s liquidity position was robust. Its €262-billion liquidity reserve continued to stand well above the regulatory requirements, with a liquidity coverage ratio of 136% in the third quarter.

Over the past six months, shares of Deutsche Bank have gained 36.2% compared with a 5.4% rally recorded by the industry.


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Currently, DB sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A couple of other top-ranked stocks from the same space are HSBC Holdings plc (HSBC - Free Report) and Barclays PLC (BCS - Free Report) . HSBC currently carries a Zacks Rank #2 (Buy) and BCS sports a Zacks Rank of 1.

The Zacks Consensus Estimate for HSBC’s 2022 earnings has been unchanged over the past 60 days. Over the past three months, HSBC’s share price has increased 12.4%.

Barclays’ 2022 earnings estimates have been revised 10.1% upward over the past 60 days. BCS’ shares have gained 12% over the past three months.

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