ECB raises Deutsche Bank capital bar in leveraged loan crackdown

DEUTSCHE Bank confirmed it faces a higher capital requirement as its main regulator pushes lenders to dial back the risks that they face in the lucrative business of leveraged finance.

The German lender must hold common equity Tier 1 capital equivalent to 10.55 per cent of its risk-weighted assets this year, up from 10.43 per cent at the end of September, it said in a statement last Friday (Dec 30) after market close. The firm already exceeds the requirement by a wide margin, with a ratio of 13.33 per cent at the end of the third quarter.

“The increase is driven by the ECB’s newly introduced separate assessment of risks stemming from leveraged finance activities,” Deutsche Bank said.

Bloomberg reported in November that the German bank and BNP Paribas were among lenders facing rising capital charges related to leveraged loans. The ECB has said some lenders are not properly grasping the risks they face in that business, which involves financing highly-indebted companies, such as those acquired by private equity firms. 

Deutsche Bank chief executive officer Christian Sewing has pushed back, saying his company does not need warnings from its regulator to contain the risk it faces in leveraged loans. BLOOMBERG