Deutsche Bank AG, Europe’s biggest bank by assets, is considering selling contingent convertible bonds to bolster capital at its U.S. unit should the Federal Reserve implement stricter rules for foreign banks.
The sale of so-called CoCos “is certainly one of the options that is under discussion,” Stefan Krause, the Frankfurt-based lender’s chief financial officer, said today on a conference call with analysts. “That could be a solution, but again the rules are not final.”
The Fed last month proposed subjecting two dozen foreign banks with at least $50 billion of global assets to stricter capital rules to lower risks to the financial system. That could erode the ability of the banks to compete and may prompt “retribution” from European regulators seeking tighter rules for U.S. firms, Krause said. CoCos convert into shares when a bank’s capital ratio falls below a predefined level.
“We don’t need any further capital at this point,” Krause said. “We have to wait until the final rules come out and then obviously understand what the capitalization requirements are” for 2015, he said.
Deutsche Bank said it expects to take a charge of 2 billion euros ($2.7 billion) to 2.5 billion euros in the fourth quarter related to its U.S. Taunus unit under German HGB accounting rules, Krause said. That won’t stop the bank from paying a dividend for 2012 and has no bearing on its capital levels or profit under IFRS rules, he said.
The “conservative” German accounting rules require valuations to reflect the performance of a business as far as five years in advance, said Krause.
“After the impairment we took in our local books, we are prepared,” Krause said. The rules are “not very helpful in getting the global financial market working. That’s why we’re quite hopeful and confident that there’s some revision to the framework.”