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Oct. 25 (Bloomberg) -- Deutsche Bank AG said it can raise its core Tier 1 capital level to more than 9 percent next year as European regulators push for the region’s lenders to boost the gauge of financial strength to that threshold.
Germany’s biggest bank could reach a ratio of 9.1 percent in June without additional measures beyond those scheduled to take effect at the end of 2011, Chief Financial Officer Stefan Krause said today.
The European Banking Authority tested European lenders to determine if they can reach a ratio of capital strength of 9 percent or more of risk-weighted assets by the middle of next year to boost their resilience, two people familiar with the matter said this week. Krause said Deutsche Bank’s simulation is based on external analyst estimates for the company’s net income in the fourth quarter and first half of next year.
“This means that we achieve 9 percent and still have the whole toolbox of capital management actions at our disposal to further improve our capital position or to compensate for any net income shortfall in case we do not meet current market expectations,” the CFO said on a conference call today. “It is clear we have to keep our overall risk discipline.”
The company won’t have to take government money and is under no pressure to do so, Krause said.
Deutsche Bank rose 15 cents, or 0.5 percent, to 28.63 euros by 11:32 a.m. in Frankfurt trading after reporting third-quarter net income of 725 million euros ($1 billion), more than double analysts’ estimates. The shares declined 27 percent this year.
“Their statements about capital were quite calming,” said Andreas Plaesier, a Hamburg-based banking analyst at M.M. Warburg with a buy recommendation on Deutsche Bank shares.
Deutsche Bank navigated the credit crunch following the collapse of Lehman Brothers Holdings Inc. in September 2008 without a state capital infusion, and Chief Executive Josef Ackermann said on Oct. 13 the bank will “do everything” to avoid taking government funds.
Ackermann, 63, said in a letter to shareholders today that economic conditions are the worst they’ve been since the period after Lehman’s collapse. That’s put pressure on bank stocks, “reflecting fears over exposure to peripheral eurozone economies and consequently over capital adequacy, access to liquidity, and funding quality on conditions of market stress,” he said.
Deutsche Bank’s core Tier 1 capital ratio fell to 10.1 percent at the end of September from 10.2 percent at the end of June. The measure of capital strength will fall after the company switches to tougher rules on risk weightings for securitized products and mortgage-related assets, known as Basel 2.5, this quarter.
In a separate part of his presentation, Krause said the Frankfurt-based bank can close any potential gap to a core Tier 1 ratio of 9 percent when stricter Basel III rules on capital start in 2013 with “risk-weighted asset measures or capital measures or a combination of both.”
Deutsche Bank would have to reduce risk-weighted asset equivalents by about 30 billion euros to meet the 9 percent goal, which is “only a guess of where markets may want to see us,” according to the CFO.
The firm will “choose the most effective combination of measures to allow our businesses to continue,” he said on the call with analysts today.
--With assistance from Aaron Kirchfeld in Frankfurt. Editors: Frank Connelly, Keith Campbell
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