Deutsche Bank, a 2 billion (little) help from ECB to avoid the capital increase
If the Deutsche Bank plan has been well received by the regulator, it remains to be seen whether global investors will be so confident regarding the capital targets unveiled by the bank and accepted by the ECB
di Alessandro Graziani
2' di lettura
The Deutsche Bank restructuring scheme could not have been launched without a rights issue had the European Central Bank not stepped in. The ECB will allow the German group to temporary authorization to operate with a CET1 level discounted by 0.5%. Deutsche Bank had committed to maintain a CET1 level of 13%, but for the next three years the target has been reduced to 12.5%. This is a few hundredths of a basis point above the minimum capital level defined at the individual level by the 2019 SREP set at 11.8%. In the official press release announcing the plan, Deutsche Bank's management commented, in very general terms, that «after consultation with the bank's regulators, the bank now intends to operate with a minimum CET1 ratio of 12.5% going forward». No mention of the previous 13% target, nor the 0.5% discount which analysts estimate has a value of between €1.5bn and €2bn.
The discount granted by the ECB has not escaped analysts' notice, as Adam Terelak of Mediobanca Securities has summarized effectively in a note. «A big helping hand from the regulator; 50bp CET1 concession is vital. Deutsche have avoided a rights issue by successfully lobbying with the regulators to bring down their CET1 ratio target 50bp to 12.5%». If the Deutsche Bank plan has been well received by the regulator, probably to prevent the case from spiralling out of control and so destabilizing the European banking system, it remains to be seen whether global investors will be so confident regarding the capital targets unveiled by the bank and accepted by the ECB.
«The key question is whether the market will be comfortable with a skinnier buffer over their 11.8% SREP over the mid-term», Terelak again writes, highlighting the weak link in the Deutsche Bank plan scaffolding that other banking sector analysts have also picked up. These doubts, coupled with concerns over Deutsche Bank's intention to return as much as €5bn of capital to shareholders starting from 2022 from the gradual winding down of the Credit Resolution Unit (CRU, otherwise known as the “bad bank”). This, analysts are convinced, cannot happen without further «concessions from the regulators» in reducing the operational risk RWAs which «account for approximately half the RWAs held by the new CRU».
Investor fears also focus on the real plan execution capability, but as is clear, most of the doubts revolve around the fact that Deutsche Bank is being allowed to proceed without a robust capital increase. On the first point, the 70% target cost/income ratio (still one of the highest in Europe) will have to be reached through drastic cost-cutting, which is painful because of the 18,000 jobs lost, but at least relatively easy to achieve, alongside growth in revenues which, after waiving €2bn by exiting the Equity Sales & Trading business, analysts estimate will have to increase by €3bn in the remaining businesses. This objective is far from easy to achieve, given the zero interest rate scenario which is eroding all European banks' top lines.
In primo piano
Condotto da Debora Rosciani, Elisabetta Fiorito