Deutsche Bank AG will have to clear a lower capital hurdle next year, joining other European lenders who are benefiting from a change in how the European Central Bank sets the requirements.
The lender's minimum phase-in common equity Tier 1 ratio, a measure of financial strength, was set at 9.51% for next year in the ECB's Supervisory Review and Evaluation Process, or SREP, Frankfurt-based Deutsche Bank said Tuesday. That is down from the current requirement of 10.76% and below the bank's last reported CET1 ratio of 12.58%.
The outcome of the review could further alleviate concerns about the bank's capital strength after it agreed last week to a $7.2 billion settlement to end a U.S. investigation that had roiled Deutsche Bank's shares. The settlement, for about half the amount U.S. authorities had initially sought, removed the biggest challenge for Chief Executive Officer John Cryan as he tries to restructure the bank.
Many banks in the euro zone are seeing lower capital requirements after the ECB, which supervises the biggest lenders, replaced a portion of binding requirements with nonbinding guidance. The change makes it less likely that banks will face restrictions on dividends, bonuses and some coupon payments.
Banks are unlikely to trim capital levels, even if minimum requirements drop, Fitch Ratings said in a report last week.
Concern about Deutsche Bank's financial strength intensified after the lender in September said the U.S. Department of Justice had requested $14 billion to settle its investigation, which focused on how the bank sold mortgage-backed securities in the run-up to the 2008 financial crisis.
Last week's settlement of that probe will hit Deutsche Bank's pretax profit by $1.2 billion this quarter as the firm taps existing legal reserves to blunt much of its cost. The agreement included a $3.1 billion civil penalty and $4.1 billion in relief to consumers. The latter will cause no immediate cost but may prove a drag on earnings in future years.