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Deutsche Bank used big trades to raise cash in March turmoil: Sources


As banks came under mounting pressure in March, Deutsche Bank used big trades to give its cash buffers a temporary boost, employing a method that European regulators have raised concerns over, two sources familiar with the situation said.

Deutsche swapped billions of euros in securities for cash and government bonds, the sources told Reuters, which count towards its liquidity coverage ratio (LCR). This is meant to determine the extent of a bank’s access to ready cash to fund outflows such as depositor withdrawals.

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While a legitimate banking practice, the move underscored concern at Deutsche over the wider turmoil. Having a large cash pile would have reassured investors and clients after Credit Suisse and a number of US banks suffered deposit runs.

The trades caught the attention of European Central Bank (ECB) supervisors, who questioned Germany’s largest lender about them during routine exchanges, the sources said.

Even without the trades, Deutsche would have far exceeded a 100 percent LCR regulatory requirement and overshot its own target, the sources said, adding that its liquidity is not a concern.

The important thing for the ECB, they said, is to establish how much liquidity a bank has at that given moment, as well as what it plans on having in the following months.

The issue is that liquidity can evaporate if short-term trades are not renewed, clouding the longer-term view.

“These things can shift around very quickly but as a supervisor I would be worried if they were doing this at the end of quarter, just to look nicer, and I would want to look into it,” said Thorsten Beck, Director of the Florence School of Banking and Finance and a co-chair of the Advisory Scientific Committee of the European Systemic Risk Board.

Deutsche’s use of such trades to improve its liquidity position at the height of the recent banking turmoil has not been previously reported and conversations with the regulator are confidential.

The practice is not unusual among big banks, but it was flagged by the ECB in a 2019 stress test as a technique for making a bank look stronger.

Deutsche’s trades allowed it to post an increase in its LCR in March, helping chief executive Christian Sewing praise the bank’s “resilience” and “solid foundation” to analysts when presenting the first-quarter figure in April.

Deutsche “actively manages to a conservative liquidity profile across a number of liquidity metrics,” a spokesperson told Reuters. Its liquidity level reflects “prudent steering in an uncertain market environment” and the late March increase was “mainly driven by seasonal movements,” they added.

An ECB spokesperson declined to comment.

‘Solid foundations’

March was a tense period for banks. Days after Switzerland engineered the rescue of Credit Suisse, Deutsche’s customers began withdrawing deposits, its executives later said, while shares in the bank dropped as much as 15 percent on a single day.

One concern in the market at the time was whether banks had enough cash on hand to meet the demands of depositors. Euro zone banks are required to have an LCR of at least 100 percent, meaning they have enough liquid assets to cover a month’s worth of outflows.

Deutsche’s trades helped it raise its LCR to 143 percent at March 31, its first-quarter earnings report published in April showed.

The figure stood at 137 percent on March 23, it had reported in a filing at the time, in an unusual move meant to calm markets.

The sharp increase came as a surprise, however, after Deutsche said in February that it would steer the LCR ratio lower towards its 130 percent target during the year.

Such short-term fixes, which generate big LCR moves, are likely to raise fresh questions from regulators and analysts about the reliability of requirements introduced after the global financial crisis of 2008.

Credit Suisse said it had an LCR of around 150 percent, calculated using a three-month average, less than a week before being declared non-viable by Swiss authorities and taken over by UBS.

One source said that if there is one thing that the ECB had learned from the rapid demise of Credit Suisse is that the LCR is an unreliable indicator as deposits can disappear overnight.

The 2019 ECB stress test on liquidity found that a number of banks were using “collateral swaps aimed at improving the quantity (or) quality of the LCR buffer.”

One weakness the ECB found then was that a number reported a “pronounced” liquidity drop after day 30, which may result from ‘optimization’ strategies.

It also said that the strategy had become a source of “interconnectedness among banks,” which regulators see as a source of systemic risk for the sector.

Hans-Peter Burghof, a professor of banking and finance at Germany’s University of Hohenheim, said the debate about the usefulness of liquidity metrics has been going on for decades.

“Trust can’t be measured with numbers,” he said. “If I were a regulator, I would hate it,” Burghof added of practices such as banks raising their LCRs using swaps and other trades.

Read more: Deutsche Bank to pay $75 mln to settle lawsuit by Jeffrey Epstein accusers

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Abu Dhabi Overtakes Oslo for Sovereign Wealth Fund Capital in Global SWF’s First City Ranking

Today, industry specialist Global SWF published a special report announcing a new global ranking of cities according to the capital managed by their Sovereign Wealth Funds (SWFs). The findings show that Abu Dhabi is the leading city that manages the most SWF capital globally, thanks to the US$ 1.7 trillion in assets managed by its various SWFs headquartered in the capital of the UAE. These include the Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Abu Dhabi Developmental
Holding Company (ADQ), and the Emirates Investment Authority (EIA). Abu Dhabi now ranks slightly above Oslo, home to the world’s largest SWF, the Government Pension Fund (GPF), which manages over US$ 1.6 trillion in assets. Abu Dhabi and Oslo are followed by Beijing (headquarters of the China Investment Corporation), Singapore (with GIC Private and Temasek Holdings), Riyadh (home to the
Public Investment Fund), and Hong Kong (where China’s second SWF, SAFE
Investment Corporation, operates from). Together, these six cities represent two thirds
of the capital managed by SWFs globally, i.e., US$ 12.5 trillion as of October 1, 2024.
For the past few decades, Abu Dhabi has grown an impressive portfolio of institutional
investors, which are among the world’s largest and most active dealmakers. In addition
to its SWFs, the emirate is home to several other asset owners, including central banks,
pension funds, and family offices linked to member of the Royal Family. Altogether, Abu
Dhabi’s public capital is estimated at US$ 2.3 trillion and is projected to reach US$ 3.4
trillion by 2030, according to Global SWF estimates.
Abu Dhabi, often referred to as the “Capital of Capital,” also leads when it comes to
human capital i.e., the number of personnel employed by SWFs of that jurisdiction, with
3,107 staff working for funds based in the city.
Diego López, Founder and Managing Director of Global SWF, said: “The world ranking
confirms the concentration of Sovereign Wealth Funds in a select number of cities,
underscoring the significance of these financial hubs on the global stage. This report
offers valuable insights into the landscape of SWF-managed capital and shows how it is
shifting and expanding in certain cities in the world.”

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AM Best Briefing in Dubai to Explore State of MENA Insurance Markets; Panel to Feature CEOs From Leading UAE Insurance Companies

AM Best will host a briefing focused on the insurance markets of the Middle East and North Africa (MENA) on 20 November 2024, at Kempinski Central Avenue in Dubai.
At this annual regional market event, senior AM Best analysts and leading executives
from the (re)insurance industry will discuss recent developments in the MENA region’s
markets and anticipate their implications in the short-to-medium term. Included in the
programme will be a panel of chief executive officers at key insurance companies in the
United Arab Emirates: Abdellatif Abuqurah of Dubai Insurance; Jason Light of Emirates
Insurance; Charalampos Mylonas (Haris) of Abu Dhabi National Insurance Company
(ADNIC); and Dr. Ali Abdul Zahra of National General Insurance (NGI).
Shivash Bhagaloo, managing partner of Lux Actuaries & Consultants, will his present
his observations in an additional session regarding implementation of IFRS 17 in the
region. The event also will highlight the state of the global and MENA region
reinsurance sectors, as well as a talk on insurance ramifications stemming from the
major United Arab Emirates floods of April 2024. The programme will be followed by a
networking lunch.
Registration for the market briefing, which will take place in the Diamond Ballroom at the
Kempinski hotel, begins at 9:00 a.m. GST with introductory comments at 9:30 a.m.
Please visit www.ambest.com/conference/IMBMENA2024 for more information or to
register.
AM Best is a global credit rating agency, news publisher and data analytics
provider specialising in the insurance industry. Headquartered in the United
States, the company does business in over 100 countries with regional offices in
London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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Future of Automotive Mobility 2024: UAE Leads the Charge in Embracing Digital Car Purchases and Alternative Drivetrains

-UAE scores show highest percentage among the region in willingness to purchase a car
completely online
– Openness to fully autonomous cars has grown to 60% vs previous 32%.
– More than half of UAE respondents in the survey intend to move to hybrid cars during
next car purchase, while less than 15% intend to move to fully electric car.
– UAE sees strong use of new mobility services such as ride-hailing (Uber, Careem, Hala
Taxi)
– The perceived future importance of having a car is not only increasing in UAE but is
higher than any other major region globally, even China

Arthur D. Little (ADL) has released the fourth edition of its influential Future of Automotive Mobility (FOAM) report, presenting a detailed analysis of current and future trends in the automotive industry. This year’s study, with insights from over 16,000 respondents across 25 countries, includes a comprehensive focus on the United Arab Emirates (UAE). The report examines car ownership, electric vehicles,
autonomous driving, and new mobility services within the UAE.

“The UAE is at the forefront of automotive innovation and consumer readiness for new mobility
solutions,” said Alan Martinovich, Partner and Head of Automotive Practice in the Middle East
and India at Arthur D. Little. “Our findings highlight the UAE’s significant interest in
transitioning to electric vehicles, favorable attitudes towards autonomous driving technologies,
and a strong inclination towards digital transactions in car purchases. These insights are critical
for automotive manufacturers and policymakers navigating the evolving landscape of the UAE
automotive market.”
Key Findings for the UAE:
1. Car Ownership:
o Over half of UAE respondents perceive that the importance of owning a car is
increasing, with the study showing the increase higher than any other major
region, including China.
o Approximately 80% of UAE respondents expressed interest in buying new (as
opposed to used) cars, above Europe and the USA which have mature used
vehicle markets

2. Shift to Electric and Hybrid Vehicles:
o While a high number of UAE respondents currently own internal combustion
engine (ICE) vehicles, more than half intend that their next vehicle have an
alternative powertrain, with significant interest in electric and plug-in hybrid
(PHEV) options. Less than 15% plan to opt for pure battery electric vehicles
(BEVs).

3. Emerging Mobility Trends:

o Ride-hailing services are the most popular new mobility option among UAE
residents, with higher usage rates than traditional car sharing and ride sharing.
The study indicates a strong openness to switching to alternative transport modes
given the quality and service levels available today.

4. Autonomous Vehicles:
o UAE consumers are among the most open globally to adopting autonomous
vehicles, with a significant increase in favorable attitudes from 32% in previous
years to 60% this year versus approximately 30% in mature markets. Safety
concerns, both human and machine-related, remain the primary obstacles to
broader adoption.

5. Car Purchasing Behavior and Sustainability:
o The internet has become a dominant channel for UAE residents throughout the car
buying process, from finding the right vehicle to arranging test drives and closing
deals. UAE car buyers visit dealerships an average of 3.9 times before making a
purchase, higher than any other region in the world, emphasizing the need for
efficient integration of online and offline experiences.
o Upwards of 53% of respondents from the region would prefer to ‘close the deal’
and complete the purchase of their car online, which is the highest for any region
in the world.
o Sustainability is a key factor cited by UAE consumers as influencing car choice.
The UAE scored among the top half of regions, highlighting the importance of
environmental considerations.

“Our study confirms the promising market opportunities for car manufacturers (OEMs) and
distributors in the UAE” commented Philipp Seidel, Principal at Arthur D. Little and co-Author
of the Global Study. “Consumers in the Emirates show a great and increasing appetite for cars
while being among the most demanding globally when it comes to latest vehicle technologies
and a seamless purchase and service experience.”
The comprehensive report, “The Future of Automotive Mobility 2024” by Richard Parkin and
Philipp Seidel, delves into global automotive trends and their impact on various regions,
including the UAE. This study is an invaluable tool for industry stakeholders seeking to navigate
and leverage the dynamic changes driving the future of mobility.

 

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