Tougher test awaits Deutsche Bank after clearing first Fed check

Fri Mar 6, 2015 5:09am EST
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By Thomas Atkins

FRANKFURT (Reuters) - Deutsche Bank (DBKGn.DE: Quote) AG has passed the first "stress test" set by U.S. regulators but is unlikely to clear the next hurdle as the German bank struggles to tighten compliance fast enough to appease controllers at the Federal Reserve.

Deutsche eased through the capital test of the two-part exam on Thursday, showing its U.S. operations had an ample cash cushion to survive even a severe market downturn.

It even came out as the most robust of all the 31 banks to take the test, due to the fact that the unit tested represented only a small, low-risk part of its sprawling U.S. operations.

But the Fed is widely expected to fail Deutsche Bank in a test of processes and controls on March 11, underscoring how much work lies ahead for Deutsche to expand successfully in the world’s largest market, analysts say.

“It’s almost inevitable that you won’t pass with flying colors, whatever you do,” said Bridget Gandy, managing director at Fitch Ratings. Many first-time test takers, in fact, fail, she said.

“It won’t be because of lack of capital or managing their operations that they fail, but that they haven’t managed their operations in such a way as to tick each box to come through the test well,” she said.

Deutsche said Thursday’s results demonstrated the robustness the unit that was tested, which represents less than 5 percent of its total assets, but declined to comment on the outcome expected next week.

“Like the other banks, we’ll know the results on March 11,” a spokesman said.   Continued...

The headquarters of Deutsche Bank are pictured in Frankfurt January 29, 2015.    REUTERS/Ralph Orlowski