Deutsche Bank, Santander may fail Fed stress tests: report

New York

DEUTSCHE Bank AG and Banco Santander SA are among European banks that probably will fail Federal Reserve stress tests of their US operations this year because they're not good enough at measuring their risks, the Wall Street Journal reported, citing people familiar with the matter.

While the tests probably will find that Deutsche Bank Trust Corp has adequate capital, the unit likely will receive a warning about the quality of its processes, according to the report. The bank already is in a remediation process with the Fed over how it handles matters such as regulatory reporting, risk control and compliance, the report said. "Deutsche Bank Trust Corporation, which represents less than 5 per cent of Deutsche Bank AG's total assets, was pleased to participate in the Fed tests," said Michele Allison, a spokeswoman for Deutsche Bank in New York.

Santander's US unit also probably will fail because of the quality of its processes even though its capital is likely to be adequate, the Journal reported. Peter Greiff, a spokesman for Santander, declined to comment.

While Deutsche Bank is undergoing its first Fed test this year, it would be the second straight failure for Madrid-based Banco Santander's US unit. US units of Royal Bank of Scotland Group and London-based HSBC Holdings also had their capital plans rejected by the Fed last year.

The US units of Deutsche Bank and Banco Santander probably would be restricted from paying dividends to their European parents or other shareholders if they fail the test, the Journal reported. Santander already is under such a restriction, the newspaper said. BLOOMBERG