By Jenny Strasburg and Max Colchester
Deutsche Bank AG has been shrinking its U.S. business by paring back assets and taking other steps to meet tougher capital requirements European banks face there, according to a new U.S. regulatory filing.
The German lender has reduced its so-called risk-weighted assets in the U.S. and reduced its reliance on borrowings there. However, Deutsche Bank barely passed the coming 2018 minimum level for a key risk measure known as the Tier 1 leverage ratio, according to the filing.
In early 2018, the ratio will have to be at least 4.0% for big European banks subject to the tougher U.S. regulatory requirements. At the end of the third quarter, Deutsche Bank's U.S. holding company had a Tier 1 leverage ratio of 4.08%, according to the filing made public Tuesday.
European banks with big U.S. operations face new disclosure and capital rules in the U.S., which have required them to create so-called intermediate holding companies to reorganize U.S. trading, investment-banking and lending operations and could cause them to bolster their capital cushions. Deutsche Bank's new U.S. entity, called DB USA Corp., went into operation July 1.
"DB USA Corporation is capitalized as required by the Federal Reserve and is well positioned to meet future regulatory capital requirements," Deutsche Bank said.
As of Sept. 30, the U.S. Deutsche Bank entity had $203.4 billion in assets, or roughly 11% of the German lender's total assets of EUR1.69 trillion ($1.81 trillion).
The entity's average level of assets during the quarter was $248 billion, showing that its assets declined markedly even in the span of three months. A 2011 regulatory filing for Deutsche Bank's U.S. business showed $354.7 billion in total assets in that entity at the time, though some pieces of what's included in the calculations have changed slightly.
The U.S. business generated net income of $635 million for Deutsche Bank the first nine months of this year.
The new filing shows that DB USA Corp. had a common equity Tier 1 ratio of 13.2% as of Sept. 30. That is a measure of financial health closely watched in Europe, but calculated differently under U.S. accounting rules.
Deutsche Bank had $10.9 billion in equity capital parked in its U.S. entity at the end of last quarter, according to the filing. That is about 15% of its total $71.6 billion in equity at quarter-end.
The lender's U.S. business had 8,409 full-time equivalent employeesas of Sept. 30, of roughly 101,000 companywide.
Barclays PLC has parked about a quarter of its group equity in its U.S. holding company, according to a separate securities filing Tuesday.
The British bank said that around $14 billion of equity is in its newly created holding company.
The banks' moves come after the U.S. Federal Reserve adopted rules requiring the U.S. arms of foreign banks to be better capitalized and subjected to annual "stress tests." The newly created Barclays Intermediate Holding Company comprises around 85% of the bank's U.S. balance sheet.
The Barclays entity has a capital ratio of 10.2%, a level which may have to be bolstered if it is to pass upcoming U.S. balance sheet checks. Barclays' holding company broadly comprises of its American investment bank and U.S. cards business. Not included are certain derivatives trades which are booked in a branch.
Investors are watching both banks for cluesto the adequacy of the capital they hold. Both Barclays and Deutsche Bank have been in restructuring mode since new management took over in 2015.
Tuesday's filings were the first for the new U.S. entities, helping set a benchmark for how the European banks capitalize their operations there ahead of future stress tests.
Write to Jenny Strasburg at firstname.lastname@example.org and Max Colchester at email@example.com
(END) Dow Jones Newswires
November 16, 2016 07:44 ET (12:44 GMT)
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