Germany's biggest lender, Deutsche Bank (DBKGn.DE), is expected to announce during its second-quarter results its plans to reach a minimum 3 percent overall equity to loans ratio in the next two and a half years, the Financial Times reported on Sunday, citing people briefed on the plans.
The bank is set to cut its balance sheet by 20 percent to 1 trillion euros ($1.31 trillion) by the end of 2015 to comply with tougher rules that are expected to require banks to use more equity capital to fund their business, to make them more robust in the aftermath of the 2007-09 credit meltdown, the newspaper said. (link.reuters.com/qeq79t)
The plans, which are expected to have a very small impact on earnings, include new regulatory rules for the accounting of derivatives, reducing the bank's cash pile of 240 billion euros and cutting down its 90-billion euro assets in its non-core unit, the report added.
Deutsche Bank declined to comment on the matter.
In January, Deutsche Bank announced one-off charges of almost $4 billion to adjust the valuations of risky assets in an attempt to shrink its balance sheet.
It had warned then that litigation costs and its moves to trim costs and reduce balance sheet risks could hit earnings for the remainder of this year.
Deutsche Bank is also considering issuing at least 6 billion euros in hybrid equity capital such as convertible bonds after clarification from the German banking regulator on which instruments will be recognized under a new global capital regime for banks, the Financial Times said.
The lender's estimated ratio of equity to assets stood at 2.1 percent as of March 31, the second-lowest of 18 banks ranked by Morgan Stanley analysts, the newspaper said.
Banks complain equity is the most expensive way to fund their business, but it is the safest from a taxpayer's or a regulator's perspective. That is because shareholders are the first to lose their money in case of bankruptcy.
($1 = 0.7611 euros)
(Reporting by Abhirup Roy in Bangalore; Editing by Theodore d'Afflisio)