According to a Financial Times report, Deutsche Bank AG (NYSE:DB) was given special treatment by EU regulators conducting so-called “stress tests” on Europe’s largest banks, which led to the bank appearing stronger than it actually was.
Deutsche Bank itself has even been touting the result to point to its own solvency, even though the numbers were fudged:
Germany’s biggest lender, which has seen its share price fall as much as 22 per cent in recent weeks on fears that it could face a US fine of up to $14bn, has been using the results of the July stress tests as evidence of its healthy finances.
But the Financial Times has learnt that Deutsche’s result was boosted by a special concession agreed by its supervisor, the European Central Bank.
The special treatment was the inclusion $4 billion on DB’s books stemming from a sale of its stake in Chinese lender Hua Xia — even though the deal hadn’t been completed by the Dec. 31, 2015 deadline. That date was the supposed cut-off for any transactions for the purposes of the test, but for reasons unknown, Deutsche was allowed the extra money on its books anyway.
That deal, by the way, still hasn’t been completed, now some ten months later (though Deutsche says it expects to complete it before the end of 2016).
Although the special treatment was notated via a small footnote in the EU report, none of DB’s competitors were given the same leeway:
The Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results. None of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015.
In one case, Spanish lender Caixabank completed the €2.65bn sale of foreign assets to its parent company Criteria Holding in March but was still not allowed to include the impact of that sale in its results.
So far, both the ECB and DB have declined to comment on the story, which is sure to roil investors and further erode faith in Deutsche Bank — not to mention the EU banking system as a whole. It goes without saying that bank testing methodology is supposed to be conducted uniformly, and especially so in cases of banks that pose systemic risks like DB.
Deutsche Bank’s U.S.-listed shares rose $0.06 (+0.44%) to $13.70 in premarket trading Monday. Year-to-date, DB has fallen 43.52%.