Deutsche Bank may have funding gap for Italy, Spain

June 13 (Bloomberg) -- Deutsche Bank AG has an imbalance between assets and external funding of as much as 14 billion euros ($17.6 billion) in its Italian and Spanish units, according to analysts at Espirito Santo Investment Bank.

Deutsche Bank’s loans amount to 205 percent of its deposits at the Italian unit and 314 percent in Spain, according to London-based analyst Andrew Lim, who cited the published accounts of the two units. A return to the lira and the peseta would cost Germany’s biggest lender as much as 4.2 billion euros, assuming a 30 percent depreciation of the replacement currencies, according to Lim.

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 the stock.

The prospect of a potential Greek exit from the single currency casting doubt on the euro’s survival has 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 lender’s assets -- its loans and securities -- were suddenly transformed into a depreciating lira or peseta, while its borrowings remained in euros, the bank would have to absorb substantial losses.

Deutsche Bank spokesman Armin Niedermeier in Frankfurt said the lender doesn’t generally comment on analyst reports.

Banks have responded to the possibility of a euro break-up by seeking to fund foreign assets with borrowings in the same jurisdiction. Deutsche Bank SpA, the Italian unit, has about 6.5 billion euros of borrowings, including 3.5 billion euros from the European Central Bank in its longer-term refinancing operation in February, data compiled by Bloomberg show.

Separately, the lender’s Milan branch has borrowed about 1.13 billion euros, the data show.

Leaving out the LTRO borrowings, the funding gap in Italy and Spain would have been as much as 23 billion euros at the end of 2011, according to Lim.

The Spanish unit has borrowed 5.58 billion euros, including 5.5 billion in the LTRO.

Bloomberg News

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