Deutsche Bank expected to announce plans to cut balance sheet

Monday 22 July 2013 08.01
Deutsche Bank is set to trip its balance sheet to ensure compliance with new rules
Deutsche Bank is set to trip its balance sheet to ensure compliance with new rules

Germany's biggest lender, Deutsche Bank, is expected to announce plans to reach a minimum 3% overall equity to loans ratio in the next two and a half years.

The bank is set to cut its balance sheet by 20% to €1 trillion by the end of 2015 to comply with tougher rules that are expected to require banks to use more equity capital to fund their business, The Financial Times said.

The plans, which are expected to have a very small impact on earnings, include new regulatory rules for the accounting of derivatives, reducing the bank's cash pile of €240 billion and cutting down its €90 billion assets in its non-core unit, the report added.

Deutsche Bank declined to comment on the matter.

In January, Deutsche Bank announced one-off charges of almost $4 billion to adjust the valuations of risky assets in an attempt to shrink its balance sheet.

It had warned then that litigation costs and its moves to trim costs and reduce balance sheet risks could hit earnings for the remainder of this year.

Deutsche Bank is also considering issuing at least €6 billion in hybrid equity capital such as convertible bonds after clarification from the German banking regulator on which instruments will be recognised under a new global capital regime for banks, the Financial Times said.

The lender's estimated ratio of equity to assets stood at 2.1% as of 31 March, the second-lowest of 18 banks ranked by Morgan Stanley analysts, the newspaper said.

Banks complain equity is the most expensive way to fund their business, but it is the safest from a taxpayer's or a regulator's perspective. That is because shareholders are the first to lose their money in case of bankruptcy.