The European Central Bank (ECB) has told Deutsche Bank that it will likely have to hold more equity to account for the increased risks of its leveraged loan lending to highly indebted clients, as per sources familiar with the matter. Deutsche may be able to avoid setting a higher level for capital if it is able to reduce its risk exposure by year end before ECB sets its requirements for 2022. Deutsche Bank responded, “We have a strong track record in the (leveraged loan) business and we follow a prudent risk management approach in line with regulatory requirements. As a matter of principle we do not comment on dialog with our regulators”. Bloomberg notes that the leveraged loan business has been a key contributor to its investment banking unit and has gained market share after making $300mn in revenues in 2020. The bank’s first quarter net profits were its strongest in seven years with its CET1 ratio at 13.7%, up 90bp YoY. In 2020, ECB had asked Deutsche Bank to suspend its leveraged finance business due to a lack of appropriate risk controls.
Deutsche Bank’s 7.5% Perp remained stable at 110.67.
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