Deutsche Bank faces big capital hit under tighter European rules: analysts

Mon Apr 7, 2014 12:48pm EDT
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By Thomas Atkins

FRANKFURT (Reuters) - Deutsche Bank (DBKGn.DE: Quote) may need to set aside billions of euros in additional capital under a proposal from European regulators that could affect the bank's efforts to strengthen its balance sheet and put pressure on dividends.

Analysts estimated Germany's biggest bank by market value might need as much as 2.2 billion euros ($3.02 billion) in extra capital to meet the tough new rule from the European Banking Authority, the regulator for banks in the European Union.

The proposal, made last week, would impose detailed standards on how banks value certain assets on their books and requires them to set aside additional capital to absorb unexpected losses.

Banks will, for example, need to use conservative valuations, seek independent price verification and consider additional costs when marking the value of their assets to market‎.

Some European Union countries, including Germany, have not forced banks to apply such capital rules, even though they have been in the EBA's pipeline for some time.

Britain introduced them ahead of other countries to help to strengthen UK banks and prevent future bank bailouts paid for by taxpayers. The impact of these rules on Barclays (BARC.L: Quote), for example, was about 2.1 billion pounds.

"This is another major issue for Deutsche Bank to deal with," Christopher Wheeler analyst at Mediobanca in London said. "Deutsche Bank has done lot of great work on capital but a lot of that has been undone by the rising cost of litigation," Wheeler said.

Deutsche Bank expects to pay more hefty fines for legal claims in the wake of the financial crisis. It has paid more than 5 billion euros in fines over the past two years.   Continued...

A man walks past Deutsche Bank offices in London December 5, 2013. REUTERS/Luke MacGregor