Deutsche Bank failed stress tests
Deutsche Bank (DB) is proving to be the most dangerous bank to the global economy, particularly after it failed the US Federal Reserve’s 2016 stress tests in June. The bank’s stock has fallen 50% YTD (year-to-date).
Capital reserves are important to restore the confidence of regulators and investors, and the IMF (International Monetary Fund) labeled it the riskiest bank to the global economy after it failed to meet 2016 capital requirements.
A closely tracked measure of financial strength, the CET (Common Equity Tier) 1 Capital Ratio, rose to 10.8% in June from 10.4% in the previous quarter. This ratio is further expected to rise once the sale of the 20% stake in Chinese lender Huaxia Bank is complete. That transaction will be completed in the second half, adding about 40 basis points to the capital ratio, according to a company statement.
Deutsche Bank has set a target of 12.5% for CET 1 ratio by the end of 2018. While Tier 1 capital is still within the current regulatory minimum, it is below the ratio required by 2019. European counterparts (EUFN) such as Credit Suisse (CS), UBS, and Royal Bank of Scotland (RBS) have also been struggling to build capital reserves to meet regulatory requirements in the negative interest rate environment.
Deutsche Bank has cut dividend payments for 2015 and 2016 as part of its plans to strengthen capital. Since 1952, it had been paying dividends regularly.
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