Deutsche Bank's US unit fails stress test

Deutsche Bank's headquarters in Frankfurt. Of the 18 domestic and foreign banks that faced the qualitative section of the Fed's exam, Deutsche Bank was the only one to receive an objection. The Fed found "widespread and critical deficiencies across t
Deutsche Bank's headquarters in Frankfurt. Of the 18 domestic and foreign banks that faced the qualitative section of the Fed's exam, Deutsche Bank was the only one to receive an objection. The Fed found "widespread and critical deficiencies across the firm's capital-planning practices", among other issues.PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • Deutsche Bank failed the first public stress test of its combined US business as the Federal Reserve faulted the company's internal controls, giving another black eye to executives trying to shore up investor confidence.

The Fed found "widespread and critical deficiencies across the firm's capital-planning practices", according to a statement on Thursday. It cited weaknesses in Deutsche Bank's risk-management functions and data capabilities, as well as the methodology and assumptions used to forecast how the unit would fare under stress.

Of the 18 domestic and foreign banks that faced the qualitative section of the exam, Deutsche Bank was the only one to receive an objection. The finding shows that the authorities remain frustrated with the company's US arm, which they added last year to a confidential list of troubled lenders.

"Together, these weaknesses raise concerns about DB USA's ability to effectively determine its capital needs on a forward-looking basis," the Fed said.

Deutsche Bank said the US business "has made significant investments to improve its capital planning capabilities as well as controls and infrastructure". The unit is still making progress and working with regulators, according to a statement posted on the Web.

The US unit of Germany's largest bank failed the second round of this year's stress tests, which were established as part of the Dodd-Frank overhaul of financial regulations. All 35 of the lenders in the opening round showed they could withstand a severe economic downturn, the Fed announced last week.

Still, the impact on Deutsche Bank is limited. The Frankfurt-based firm draws on other resources to pay profits to shareholders, and has enough cash in Europe to maintain operations.

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A version of this article appeared in the print edition of The Straits Times on June 30, 2018, with the headline 'Deutsche Bank's US unit fails stress test'. Print Edition | Subscribe