Deutsche Bank Gets Biggest Boost From Tiering, JPMorgan Says

(Bloomberg) -- Deutsche Bank AG will benefit the most by far from the European Central Bank’s new tiered deposit rate, JPMorgan Chase & Co. analysts led by Kian Abouhossein said Friday.

Germany’s largest lender stands to save roughly 200 million euros ($222 million) in annual interest payments thanks to a new rule that exempts a big chunk of the money it holds at the ECB from the negative rate the central bank charges on deposits. That’s equivalent to 10% of the pretax profit the analysts expect the bank to report in 2020, compared with an average of just 2.5% for the EU banks included in the analysis.

Deutsche Bank Gets Biggest Boost From Tiering, JPMorgan Says

The ECB yesterday lowered its deposit rate by 10 basis points to -0.5% as it grapples with persistently low inflation and a weakening economic outlook in the euro area. Banks have said the move will make it even harder to improve their already low profitability. Deutsche Bank Chief Executive Officer Christian Sewing said last week that negative interest rates will “ruin the financial system” in the long run.

The second-biggest tiering beneficiary is Commerzbank AG, the analysts said in the report Friday. The bank is set to save about 100 million euros, or around 6% of its 2020 pretax profit. The total relief for the banking system is about 1.7 billion euros, they said.

The two German lenders are getting the biggest boost because they have a comparatively high level of ECB deposits that fall under the new rule. They also both have relatively weak profitability, meaning even a small amount of savings can significantly boost their bottom line.

“Banks would like to have positive rates, unquestionably,” Draghi said at the ECB’s press conference on Thursday. But profitability is much more affected by costs, and adapting to new technology would be “much more compelling than being angry about negative rates,” he said.

©2019 Bloomberg L.P.

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