Deutsche Bank AG is likely to win a reduction in the capital surcharge for its leveraged finance business from the European Central Bank, potentially mitigating a source of friction between the German lender and its top regulator.
The ECB is preparing banks’ individual capital requirements for next year and progress Deutsche Bank has made in curbing risks related to leveraged lending means officials will probably lower a so-called capital add-on for the business, according to people familiar with the matter. The lender however still isn’t in full compliance and the ECB is likely to keep much of the surcharge, said the people, who asked to remain anonymous as the matter is private.
Deutsche Bank saw its requirement rise to 2.7% of risk-weighted assets this year from 2.5% for last year. The lender said the increase was driven by the watchdog’s “assessment of risks stemming from leveraged finance activities.” Eliminating that surcharge altogether would free up more than €700 million of capital, according to Bloomberg calculations based on data from the end of June. The reduction Deutsche Bank may receive now wouldn’t achieve all of that effect.
Enria didn’t name any of the banks involved. Bloomberg has reported that the ECB raised capital requirements for lenders including BNP Paribas SA as well as Deutsche Bank over their leveraged finance businesses.European lenders have in recent years piled into credit for highly indebted borrowers, which were often the subject of private equity takeovers, as they sought to compete with US firms in an area that can generate high fees and help them win other business.
Deutsche Bank exceeds its capital requirements and is paying out money to shareholders via dividends and share buybacks.Deutsche Bank CEO Tells ECB It Doesn’t Need Warnings on Risk
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