Deutsche Bank may face higher capital bar for leveraged loans

The European Central Bank has told Deutsche Bank AG it will probably need to hold more equity to account for the risk in lending to highly indebted clients, Bloomberg News reported on Tuesday, citing people familiar with the matter.

The German lender can avoid a higher bar for equity requirements if it can effectively reduce its risk exposure, the report said, before the ECB sets targets for 2022 by the end of the year.

“We have a strong track record in the (leveraged loan) business and we follow a prudent risk management approach in line with regulatory requirements,” Deutsche Bank said.

“As a matter of principle we do not comment on dialogue with our regulators.”

The ECB declined to respond to a Reuters request for comment.

ECB’s move could complicate matters for Chief Executive Officer Christian Sewing, who embarked on a radical restructuring two years ago in an effort to return the bank to profitability.

The bank’s first-quarter net profit was strongest in seven years, driven by its investment banking activities that outperformed major U.S. rivals.