Deutsche Bank AG has made reducing the cost of issuing debt a top priority as it risks losing up to €200 million in revenue a year due to rising funding costs, people familiar with the thinking of the bank's executives told the Financial Times.
The German bank is facing higher funding costs as a result of post-crisis regulations that put senior bondholders on the hook if a German bank fails. The bank's investment bank could be priced out of business for its important institutional clients if it pays more in funding costs than its rivals such as BNP Paribas SA and JPMorgan Chase & Co., analysts told the FT.
The bank's push to reduce funding costs follow the downgrade of its ratings and a decline in its share price. Further, the price of insuring the bank's debt surged on fears of contagion from political crises in Italy and Turkey, according to the publication.
In March, Deutsche Bank CFO James von Moltke said higher funding costs became a €150 million drag on the bank's earnings.
While Deutsche Bank executives acknowledge the issue of higher funding costs, a spokesperson told the FT that the bank's creditworthiness is not fully recognized in its credit spreads and that its ratings and spreads will improve.
Meanwhile, analysts believe the bank's capital and liquidity positions are strong and that it only has to renew wholesale market funding worth €10 billion before the end of 2018. When compared to the bank's annual revenues of €26 billion, the €200 million annual hit is not likely to affect the bank's strategy, the FT added.