Deutsche Bank Falls Short Under Goldman’s Take on Stress Tests

Deutsche Bank AG showed a 2 billion-euro ($2.22 billion) capital shortfall under Goldman Sachs Group Inc.’s analysis of stress tests conducted by European regulators last month.

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 AG 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.

Germany’s two largest lenders 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.

Deutsche Bank’s gap widened to 6.7 billion euros when applying an extra 1 percent “comfort buffer” to guard against investor unease, Goldman Sachs said. A total of eight European banks, including Societe Generale SA, UniCredit SpA and Barclays Plc, failed to cross that hurdle, according to the analysts. While Bayerische Landesbank was the only other German lender to show a shortfall, at 800 million euros under one scenario, several others showed a “close pass,” the analysts wrote.

When contacted by Bloomberg, a Deutsche Bank spokesman cited remarks Chief Risk Officer Stuart Lewis made to Frankfurter Allgemeine Sonntagszeitung last month, in which he said the stress test “confirmed, that there is no reason for a capital increase at present.” The bank can reach its goal for raising capital levels by implementing its strategy and freezing dividend payments, Lewis said.

Commerzbank takes “the results of the stress test seriously, especially when it comes to the importance of profitability,” Chief Financial Officer Stephan Engels told analysts on a conference call this month. That will be one of the “key topics” of an investor briefing the company will hold in the second half that “will focus on costs, revenues, and digitalization,” he said.

    Before it's here, it's on the Bloomberg Terminal.