Deutsche Bank’s capital levels
Deutsche Bank is proving to be the most dangerous bank to the global economy after it failed the Federal Reserve’s 2016 stress tests in June. The bank’s stock is down nearly 40% in 2016 so far, and capital reserves are important to restore the confidence of regulators and investors. IMF has labeled it the riskiest bank to the global economy after it failed to meet 2016 capital requirements.
“We have continued to de-risk our balance sheet, to invest in our processes and to modernise our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring,” said John Cryan, CEO of Deutsche Bank.
A closely tracked measure of financial strength is the Common Equity Tier 1 Capital Ratio, which rose to 11.1% in September, higher than 10.8% in the previous quarter. For 2016, the bank expects the fully loaded CET 1 ratio to remain broadly flat. Further, litigation expenses, restructuring costs, and the “de-risking” of non-core operations have impacted the CET 1 ratio.
The Deutsche Bank has set a target of 12.5% for the CET 1 ratio and a 4.5% leverage ratio by the end of 2018. While Tier 1 capital is still within the current regulatory minimum, it’s below the ratio required by 2019. European counterparts (EUFN) such as Credit Suisse (CS), UBS, and Royal Bank of Scotland (RBS) have been struggling to build capital reserves to meet regulatory requirements.
Investors worried about Deutsche Bank's bankruptcy are now looking at CEO John Cryan’s plan to restructure the company’s operations to get it back into profitability.
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