Exclusive: Deutsche Bank 'horribly undercapitalized' - U.S. regulator

Fri Jun 14, 2013 6:02pm EDT
 
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By Emily Stephenson and Douwe Miedema

WASHINGTON (Reuters) - A top U.S. banking regulator called Deutsche Bank's capital levels "horrible" and said it is the worst on a list of global banks based on one measurement of leverage ratios.

"It's horrible, I mean they're horribly undercapitalized," said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. "They have no margin of error."

Hoenig, who is second-in-command at the regulator, said global capital rules, known as the Basel III accord, allow lenders to appear well-capitalized when they are not. That is because the rules allow the banks to use complicated measurements of how risky their loans are to determine the capital they must hold, he said.

But using a tougher leverage ratio measurement - which compares a bank's shareholder equity to its total assets without using risk-weightings - the picture for banks such as Deutsche Bank is very different, he said.

Deutsche Bank this year is almost done raising 5 billion euros ($6.67 billion) in new debt and equity, boosting its core capital ratio to around 9.5 percent, which it says has made it one of the best-capitalized banks among its peers.

"To say that we are undercapitalized is inaccurate because if you look at the Basel framework, we're now one of the best capitalized banks in the world after our capital raise," Deutsche Bank's Chief Financial Officer Stefan Krause told Reuters in an interview, when asked about Hoenig's comments.

"To suggest that leverage puts us in a position to be a risk to the system is incorrect," Krause said, calling the gauge a "misleading measure" when used on its own.

Deutsche's leverage ratio stood at 1.63 percent, according to Hoenig's numbers, which are based on European IFRS accounting rules as of the end of 2012.   Continued...

 
Pedestrians are reflected in a window as they walk in front of the headquarters of Deutsche Bank AG in Frankfurt September 5, 2011. REUTERS/Alex Domanski