Deutsche Bank scrapes through European banks stress test

Monday, 1 August 2016 00:00 - - {{hitsCtrl.values.hits}}

FRANKFURT (Reuters): Deutsche Bank showed a weaker reading in the European Union’s banking stress test than most of its peers, indicating that the lender still has far to go in a revamp it launched last year.

In a theoretical economic and financial shock, the capital level of Germany’s flagship lender would drop to 7.8% from 10.8% at the end of last year, ranking it tenth from the bottom in the health check of 51 lenders, data from the European Banking Authority (EBA) showed on Friday.

The test covered 70% of EU banking assets and mimicked a three-year financial and economic shock, with new elements such as potential fines and settlements added this time around.

Deutsche Bank scraped past the level of 7.5% that analysts had seen as a threshold because of its designation by regulators as one the world’s systemically most-important banks.

“We come out of the 2016 stress test stronger than in 2014, although this year’s exercise was more demanding,” Chief Executive John Cryan said in a statement, adding that the bank would focus on further strengthening its capital.

Financial analyst David Hendler from U.S.-based Viola Risk Advisors said that the stress test showed that Deutsche Bank needs a tremendous amount of capital. “It’s beyond their ability to generate it themselves,” he said.