Deutsche Bank May Have $18 Billion Italy, Spain Gap [View all]

[marmar]

(Bloomberg) Deutsche Bank AG (DBK) has a funding gap of as much as 14 billion euros ($17.5 billion) at its Italian and Spanish units which could reduce capital levels at the firm if those countries leave the euro, according to analysts at Espirito Santo Investment Bank.

Deutsche Bank’s loans amount to 205 percent of deposits at the Italian unit and 314 percent in Spain, according to London- based analyst Andrew Lim, who cited company filings. If those countries exit the euro and the new currencies fall 30 percent, the Frankfurt-based lender could lose as much as 4.2 billion euros of equity as the value of assets at those divisions declines while some funding remains in euros, he said.

The impact would be “quite significant for a bank which is already very weakly capitalized,” Lim wrote in a note today, reiterating his “sell” recommendation on shares in Germany’s biggest bank. The effect of those two states leaving the euro could be mitigated by the wholesale funding of the units, which would also be devalued in the case of a breakup of the common currency, the analyst said.

The prospect of a Greek exit from the single currency has cast doubt on the euro’s survival and prompted concern about banks’ cross-border assets and liabilities, which might be re- denominated into legacy currencies in the event of a break-up. If a bank’s loans and securities transformed into a depreciating lira or peseta, while its borrowings remained in euros, the lender would have to absorb losses. ..................(more)

The complete piece is at: http://www.bloomberg.com/news/2012-06-13/deutsche-bank-may-have-14-billion-euro-italy-spain-funding-gap.html