As rumours of possible German state intervention persist, Deutsche Bank is struggling to meet its capital and earnings targets according to figures from S&P Global Market Intelligence.
Prompted by the US Department of Justice demanding US$14bn to settle legal action over mortgage securities, market concern over Deutsche Bank’s capital and earnings has spilled over into rumours about a state-led rescue. The bank and the German government have issued several rounds of denials, the latest after German daily Die Zeit claimed on 28 September that work was underway on a rescue plan that potentially includes fresh capital for the bank.
Despite the denials, S&P says that Deutsche Bank is struggling and the bank’s results for the past several years show weakening equity, high leverage and a poor earnings record, while the gap between recent performance and the actual targets looks considerable.
S&P also notes that consensus estimates for the full year 2017 suggest that Deutsche Bank’s common equity Tier 1 ratio will come close to its 2018 target thanks in part to a reduction in risk-weighted assets, but they foresee weak returns around 4% – and downgrades cannot be ruled out. The bank’s shares have more than halved in value so far this year, and its market capitalisation has fallen below €15bn.
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The EU and US’ shift in accounting standards may bring balance sheet losses and increase credit risk, according to James Elder, director of risk services at Standard & Poor’s (S&P) Global.