Thursday, 8 June 2023


Exclusive-Deutsche Bank used big trades to raise cash in March turmoil -sources By Reuters

Exclusive-Deutsche Bank used big trades to raise cash in March turmoil -sources

© Reuters. FILE PHOTO: The logo of Deutsche Bank is seen in Brussels, Belgium, December 6, 2022. REUTERS/Yves Herman

By Francesco Canepa and Tom Sims

FRANKFURT (Reuters) – As banks came under mounting pressure in March, Deutsche Bank (ETR:) used big trades to give its cash buffers a temporary boost, employing a method that European regulators have raised concerns over, two sources familiar with the situation said.

Deutsche swapped billions of euros in securities for cash and government bonds, the sources told Reuters, which count towards its liquidity coverage ratio (LCR). This is meant to determine the extent of a bank’s access to ready cash to fund outflows such as depositor withdrawals.

While a legitimate banking practice, the move underscored concern at Deutsche over the wider turmoil. Having a large cash pile would have reassured investors and clients after Credit Suisse and a number of U.S. banks suffered deposit runs.

The trades caught the attention of European Central Bank (ECB) supervisors, who questioned Germany’s largest lender about them during routine exchanges, the sources said.

Even without the trades, Deutsche would have far exceeded a 100% LCR regulatory requirement and overshot its own target, the sources said, adding that its liquidity is not a concern.

The important thing for the ECB, they said, is to establish how much liquidity a bank has at that given moment, as well as what it plans on having in the following months.

The issue is that liquidity can evaporate if short-term trades are not renewed, clouding the longer-term view.

“These things can shift around very quickly but as a supervisor I would be worried if they were doing this at the end of quarter, just to look nicer, and I would want to look into it,” said Thorsten Beck, Director of the Florence School of Banking and Finance and a co-chair of the Advisory Scientific Committee of the European Systemic Risk Board. Deutsche’s use of such trades to improve its liquidity position at the height of the recent banking turmoil has not been previously reported and conversations with the regulator are confidential.

The practice is not unusual among big banks, but it was flagged by the ECB in a 2019 stress test as a technique for making a bank look stronger.

Deutsche’s trades allowed it to post an increase in its LCR in March, helping chief executive Christian Sewing praise the bank’s “resilience” and “solid foundation” to analysts when presenting the first-quarter figure…

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