Tuesday 14 August 2018

Deutsche Bank faces fresh challenge with 'stress test'

'Germany’s largest lender is already facing challenges with US bank regulators and in financial markets, with its stock price falling to historic lows on Thursday.' Photo: PA
'Germany’s largest lender is already facing challenges with US bank regulators and in financial markets, with its stock price falling to historic lows on Thursday.' Photo: PA

Michelle Price and Pete Schroeder

Deutsche Bank will face another challenge this month, when the Federal Reserve publishes for the first time the results of a "stress test" on its US operations.

Germany's largest lender is already facing challenges with US bank regulators and in financial markets, with its stock price falling to historic lows on Thursday. Standard & Poor's downgraded its credit rating to BBB+ from A- on Friday.

The downgrade came after reports earlier in the week that the Fed last year designated one of Deutsche Bank's US businesses as "troubled", something a person with knowledge of the matter confirmed to Reuters on Friday.

The Fed's stress test results, expected to be released sometime this month, will be the next big public barometer of Deutsche Bank's financial strength. The regulator has been examining how the biggest US banks would handle a range of adverse economic and market scenarios since 2009, requiring many to shore up their capital buffers and risk-management controls.

But this is the first year the Fed will publicly release results of six foreign lenders, including Deutsche Bank, after requiring them to create consolidated US holding companies with ring-fenced capital.

The Fed tested those new entities last year in a trial run, the results of which are confidential.

It could be difficult for a bank which has a business on the "troubled" list to pass the scenarios, said a person familiar with the tests who was not authorised to speak publicly. That is because the capital, liquidity and risk-management failures that would land a bank on the list are similar to those that lead banks to flunk the stress test, the person said.

Additionally, many of the foreign holding companies are relatively new and have had little time to get the systems and processes in place to handle the tests, the person added.

Reuters

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