Deutsche Bank (DBKGn.DE) has laid out plans to reduce its U.S. balance sheet as the U.S. Federal Reserve adopts new rules to shield the country's taxpayers from costly bailouts, the Financial Times reported on Sunday.
The lender is expected to reduce its $400 billion balance sheet in the United States to around $300 billion in part by reassigning operations such as its Mexican arm and its Frankfurt and Tokyo-based repo businesses that are currently part of its U.S. business elsewhere, the FT reported. (link.reuters.com/raz96v)
The financial daily said that the bank will also reduce a sizeable chunk of its repo business in the U.S. after discovering that some of its clients were not making use of its other offerings.
The bank may reassign U.S.-based operations to Europe or Asia to reduce assets in its U.S. division, the newspaper said.
Deutsche's Chief Financial Officer Stefan Krause told the FT that the lender was confident it would be able to meet the new capital and leverage requirements imposed on its U.S. unit.
Krause said that the balance sheet adjustment should not be seen as a pullback from the bank's U.S. franchise, where the lender is focused on growing its asset and wealth management business as well as battling to regain ground lost to U.S. rivals in its flagship fixed income arm.
Deutsche Bank plans to convert some of the existing debt its U.S. arm owes to its German arm into hybrid debt that would convert into equity capital under certain conditions, according to the FT.
Deutsche Bank is also hoping that the German regulator will soon give it the green light to raise up to 6 billion euros in additional capital through hybrid debt to help it improve its leverage ratio in Europe, the newspaper added.
According to the new capital rules for foreign banks announced by the Fed last Wednesday, the largest foreign banks, with $50 billion or more in U.S. assets, will need to set up an intermediate holding company subject to the same capital, risk management and liquidity standards as U.S. banks.
The Fed also gave foreign banks a year longer to meet the requirement to set up the new structure, with the new deadline set as July 1, 2016. Both changes had been widely expected in the market.
Foreign banks with sizable operations on Wall Street such as Deutsche Bank and Barclays (BARC.L) had pushed back hard against the plan because it means they will need to transfer costly capital from Europe.
(Reporting by Aashika Jain in Bangalore; Editing by Eric Walsh)