Deutsche Bank Said to Pledge Cap on U.S. Use of German Deposits

  • Bank is seeking to use retail funds to finance group
  • Regulators had turned down previous request for a waiver

Deutsche Bank AG has pledged to cap the amount of retail deposits it will use to support U.S. activities as it seeks permission from European regulators to deploy German savers’ funds to other parts of the business, according to people with knowledge of the matter.

The commitment is an attempt to reassure both the European Central Bank and German regulator Bafin that savers’ cash won’t enable risky international activities, the people said, asking not to be identified because the plans are private. While a previous request to tap those deposits under the former management was rejected, regulators now have a more benign view in part because of Deutsche Bank’s pledge on the U.S. cap, the people said without defining the limit.

Deutsche Bank CEO John Cryan is merging the company’s consumer-banking activities in Germany, giving the firm access to funds held at its Postbank unit, about 118 billion euros ($140 billion) in retail deposits which over time could be re-invested in higher-yielding assets instead of mortgages. Constraints on Deutsche Bank’s ability to use the liquidity more broadly across the firm had played an important role in the decision to sell Postbank in April 2015, a sale that Cryan abandoned this year.

Representatives for Deutsche Bank, the ECB and Bafin declined to comment.

U.S. Settlement

Deutsche Bank in January finalized a $7.2 billion agreement to resolve a years-long U.S. investigation into its dealings in mortgage-backed securities before 2008. Regulators had argued that the bank’s representatives misled investors on the quality of loans underpinning mortgage securities, while some German banks had to be bailed out by the state after the securities blew up.

Cryan in March shelved a plan to sell Postbank, the larger of its two German retail subsidiaries, and instead merge it with PGK AG, potentially creating a division with about 20 million clients. The CEO -- who said in March that he was confident the bank would be allowed to use the funds across the group -- in July indicated that a waiver agreement won’t happen before the broader merger is approved.

Quick Take Q&A on the waiver.

In the U.S., Deutsche Bank is among foreign banks that from July 2016 have had to set up fully-funded umbrella legal structures for their local operations and take part in the Federal Reserve’s annual stress tests because their local assets exceed $50 billion. The Fed introduced the standard in 2012, saying it would help make U.S. units of foreign banks safer even if their parents ran into trouble back home. At the end of last year, Deutsche Bank employed about 10,500 people in the U.S., where it runs investment banking, corporate finance and fund-management operations.

The bank plans to spend 1.9 billion euros on the integration of Postbank over the next several years after spending about 1.2 billion euros on the first integration attempt between 2010 and 2015 and then several hundred million euros to prepare it for an IPO. All told, and if everything goes to plan, Deutsche Bank will have spent about 3.5 billion euros on Postbank, almost half of the equity raised from investors through a rights issue in March and April.

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