Deutsche Bank AG, Germany’s biggest lender, plans to alter the status of its main U.S. subsidiary in response to capital rules being imposed under a U.S. regulatory overhaul, two people briefed on the decision said.
The restructuring will help the division, known as Taunus Corp., shed its status as a bank holding company, which would have subjected it to the capital rules, the people said, declining to be identified because the plan isn’t public. Instead, the firm will move a U.S. banking unit out of Taunus and link it to the Frankfurt-based parent, the people said.
Overseas lenders including Barclays Plc are altering their U.S. holding subsidiaries because the Dodd-Frank Act of 2010 would otherwise force the divisions to comply with the same capital rules as domestic banks. Deutsche Bank estimated last year it might need to inject almost $20 billion into Taunus to comply with the rules, the Wall Street Journal reported yesterday, citing an internal company document it obtained.
New regulations “make it necessary for Deutsche Bank to adjust the organizational structures with which it currently operates through its NY branch and subsidiaries in the U.S.A.,” the company wrote in a list of proposals for this year’s shareholder meeting on May 26.
John Gallagher, a spokesman for Deutsche Bank in New York, said he couldn’t comment. Chief Risk Officer Hugo Banziger said in June the bank’s U.S. holding structure was designed only to ensure the lender had the same tax benefits as U.S. competitors.
‘Decision is Easy’
The operating units are “well capitalized,” Banziger said. One of the U.S. units has a Tier 1 capital ratio, a measure of financial strength, of more than 30 percent, he said.
“If you have the option of injecting $20 billion in capital into a holding company or keeping a small tax benefit, then the decision is easy,” said Dirk Becker, an analyst at Kepler Capital Markets who recommends buying the stock.
The shares climbed 1 percent to 42.40 euros as of 12:40 p.m. in Frankfurt trading today. The stock has risen 8.5 percent this year for a market value of 39 billion euros ($57 billion).
Barclays said in February it deregistered Barclays Group U.S. as a bank-holding company, partly to sidestep the capital requirements. Non-U.S. banks were previously exempt as long as their overseas parents were regulated by a government-recognized watchdog.
Taunus encompasses most of Deutsche Bank’s U.S. subsidiaries, according to the company’s 2010 annual report. Holdings include the banking business, as well as investment- banking and capital-markets operations known as Deutsche Bank Securities, the filing shows.
For months, a group of more than 15 executives has been holding weekly meetings to discuss Taunus’s situation, the Journal said, citing people familiar with the matter.
The U.S. bank unit holds $45.5 billion in assets and $17.7 billion in U.S. deposits, according to the Federal Deposit Insurance Corp.’s website. The unit counts the Federal Reserve as its primary regulator, according to the FDIC.
Barbara Hagenbaugh, a Fed spokeswoman, declined to comment.
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