Bloomberg News reports that the gap includes the higher reserves Deutsche Bank must hold as a global systemically important bank, Goldman Sachs analysts wrote in a report on Monday, citing their own calculations.
While smaller competitor Commerzbank cleared all the hurdles the analysts applied, the results highlight that the low amount of capital it can generate by setting aside profit is a key challenge for the lender.
The banks were shown to be among the worst-capitalized in the European Banking Authority’s stress tests last month as Deutsche Bank’s dependence on lending revenue mounting legal expenses weighed on the results. The banks are cutting assets and shrinking costs to lift their financial strength and avoid fresh stock sales that would dilute the holdings of shareholders.
In a break from past practice, the EBA test had no pass/fail mark and didn’t specify capital shortfalls. The exam was intended to give supervisors across the 28-nation European Union a common basis for measuring and bolstering lenders’ financial resilience.
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