German banks face mixed news on regulation

German financial regulator Bafin is mooted to be extending by six months the deadline its nation’s banks have to meet Basel III capital requirements, but a leading politician is reportedly airing a paper on forcing them to separate their investment banking operations.

If Reuters reports on Bafin come to pass, German banks will have until mid-2013 to meet Basel III requirements.

The watchdog’s move is said to be aimed primarily at Germany’s regional banks.

But it will also give major companies breathing space as they reduce risk-weighted assets and offload non-core operations, chiefly to meet capital reserve ratio targets.

Germany’s largest bank, Deutsche Bank, is close to reaching an agreement to sell BHF-Bank – which it acquired by taking over Sal.Oppenheim in 2010 – to five investors for about €400m, according to Die Welt.

Amid this flux, Deutsche Bank and its German universal banking rivals face renewed threats from their domestic politicians of having to split themselves in two, and shed their investment banking activities.

German weekly Die Zeit reports that influential German Social Democrats politician and former federal finance minister Peer Steinbrück will present to his caucus next week a paper outlining how banks can separate their investment banking operations.

This would be a major challenge not only to universal banks, and also implicitly to the pan-European Liikenan Review, which is believed to favour only ring-fencing investment banking from retail banking.

Most committee members on the review, established in February to consider whether Europe’s banks need structural reform, favour the ring fencing option, according to earlier reports in the Financial Times. The reviewers are due to publish their thoughts next month, and these would then be reviewed by European Commissioner for Internal Market and Services Michel Barnier (pictured).

Analysts at Credit Suisse say ring fencing remains the more likely outcome for the sector, but even this would have a “negative impact on profitability for Deutsche Bank…and these potential costs are not reflected in the [bank’s] strategic plan”.

Under a break-up scenario, the “gulf with peers” Deutsche Bank has in regards its capital ratio for Basel III purposes would be “further widened”, Credit Suisse’s analysts said. They have an ‘underperform’ tag on the bank.

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