Deutsche Bank said Sunday that it will miss its capital targets as it escalates lending to businesses during the coronavirus pandemic, but Germany’s largest lender still sought to reassure investors ahead of its official earnings release that the dip in capital buffer would be temporary.
The bank said in a prerelease statement that its capital buffer may shrink below its target of 12.5% for 2020 as it increases lending during the outbreak. Its common equity tier 1 ratio -- a measure of capital strength -- fell from 13.6% at the end of 2019 to 12.8% and may continue to fall. Even depleted, the buffer still remains above the legal minimum of 10.4%, set by the European Central Bank.
The bank also said the lending spike means it is "unlikely" to reach its leverage ratio target of 4.5% by the end of 2020.
However, Deutsche Bank said it won't deviate from its CET1 and leverage ratio targets for 2022.
"Management has made the clear decision to allow capital to fall modestly and temporarily below its target in order to support clients and the broader economy at this time of economic crisis," the bank said in a statement.
As regulatory agencies drop their capital minimums to encourage banks to lend, most big banks have taken advantage of the additional headroom and let their capital buffers decline. JPMorgan Chase's capital reserves dropped from 14.1% in the fourth quarter of 2019 to 13.3% in the first quarter of 2020, and Wells Fargo's shrunk from 11.1% to 10.7% over the same period. Both buffers still remain above the 9% U.S. regulatory minimum.
Deutsche Bank CEO Christian Sewing said the lender’s decision to break from its 2020 target will not weaken the bank's "strong balance sheet" and that they're "convinced that this is in the best interests of all our stakeholders."
In more encouraging news, the bank also said Sunday that its revenue for the first quarter was 6.4 billion euros ($6.9 billion), up from 6.35 billion euros in the same period last year, beating market expectations.
The growth in revenue helped cushion the spike in credit loss provisions that have slammed the profits of big commercial banks preparing for loan defaults amid the pandemic. Deutsche Bank set aside 500 million euros ($540 million) in reserves, compared to 140 million euros it stashed last year.
The bank is scheduled to release its full earnings report on April 29.
Correction: A previously published version of this article misstated Wells Fargo's capital reserves for the fourth quarter of 2019.