Deutsche relaxes capital targets in light of coronavirus crisis

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Deutsche Bank to Suspend Popular Capital Goals to “Support Customers and the Economy Overall in Times of Crisis,” Germany’s Largest Lender said Sunday evening as it released better first quarter results provided that.

Maintaining high ratios is a key element of the bank’s latest recovery plan, as it aims to reassure investors marked by a capital increase of 8 billion euros in 2014 and the same amount again in 2017.

The Financial Times reported on April 1 that Deutsche was revising this strategic plan, which promises 18,000 job cuts by 2022, as the coronavirus pandemic threatens a new wave of credit losses at European banks.

In a statement released on Sunday evening, the bank said it was “reviewing” its capital and leverage ratio targets “in anticipation of business opportunities and increased customer demand and in light of the macroeconomic environment current ”.

Deutsche had promised to keep its Common Equity Tier 1 ratio, a key measure of risk-based financial strength, above 12.5%. The bank was rewarded by analysts for the close of 2019 with a better than expected CET1 ratio of 13.6%.

“We are firmly committed to mobilizing our balance sheet to support our customers, who need us even more,” said general manager Christian Sewing in the release. “Our decision to do so means that our Common Equity Tier 1 ratio could temporarily fall below our minimum target of 12.5%, without weakening our solid balance sheet. “

The bank also said it was “unlikely” that it would reach its 2020 target of having a leverage ratio of 4.5%, a level that involves € 45 of equity for € 1,000 of assets .

Deutsche, which Sewing has promised to go “on the offensive” in 2020, is expected to follow its US rivals by announcing an increase in its loans for the first quarter, as corporate clients withdraw their revolving lines of credit in order to ” have cash to negotiate. the coronavirus crisis.

An increase in loans reduces a bank’s capital ratios, as these ratios are calculated by dividing equity by a risk-based measure of assets.

Deutsche said its CET1 ratio fell to 12.8% in late March, in line with analysts’ expectations and comfortably above its regulatory minimum of 10.4%.

Deutsche said group profit for the first quarter amounted to 206 million euros before tax, better than consensus expectations for a loss before tax of 269 million euros but worse than profits before tax of 292 million euros realized during the same period a year earlier. Net income for the first quarter of 2020 was 66 million euros, compared to 201 million euros in the first quarter of 2019.

The bank took € 500 million in provisions for credit losses in the last quarter, compared to € 140 million in the first quarter of 2019, as it prepared for a wave of bad debts triggered by the coronavirus crisis .

Deutsche said it remains committed to its other recovery targets, including those on cost reduction, and that its capital and leverage targets for 2022 remain in place.

The bank, which is expected to release its results on Wednesday, released key figures after a board meeting on Sunday evening as they differed significantly from analysts’ expectations, a spokesman for the FT said.

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