Deutsche Bank AG warned that a broad rollback of financial regulations in the US will give the German lender’s overseas competitor an edge.
James von Moltke, Deutsche Bank’s chief financial officer, told an investor conference organized by Bank of America Corp. that changes to rules governing the so-called leverage ratio could give US banks “more capacity, perhaps, to support their markets clients.” The deployment of capital by banks and private credit firms in fixed income and currencies financing will probably continue, “so margins are likely to contract there,” he added.
The advent of the Trump administration has turbo-charged efforts by banks to water down regulations and free up money to provide more credit to the economy or boost shareholder payouts. That has sparked concerns in Europe that the bloc’s lenders will struggle to keep up in global businesses like trading bonds and currencies.
“The changes will give a further advantage to the US banks,” von Moltke said in London on Thursday. “It doesn’t really change our operations in the US that there’s deregulation there” because Deutsche Bank takes decisions based on its consolidated levels of capital.
Deutsche Bank can still gain market share in the US, the CFO said, citing investments in the rates business over several years and more recently in credit trading. The bank also bolstered the fixed income division by assigning more financial resources to its financing business early this year, he said.
While reforms enacted after the 2008 financial crisis made banks safer, “there’s a point in time at which you have to judge whether the trade-off of financial stability versus growth is one that’s still the right one,” von Moltke said.
“Then you have this impetus for deregulation that’s coming from the US,” von Moltke said. “You can debate how much and which changes, but that it’ll present a competitive disadvantage to the European banks over time is indubitable.”
European officials have responded by calling for a simplification of banking regulations, while stopping short of anything that could undermine the industry’s hard-won resilience. Yet Europe’s organizational set-up means such efforts may “get stuck,” von Moltke said.
“I a little bit worry that simplification at the end of the day becomes a reason not to take action somehow that really bites,” he said.
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