Deutsche Bank Didn’t Heed ECB Request to Pause Leveraged Finance

(Bloomberg) -- Deutsche Bank AG didn’t heed a recommendation from the European Central Bank to suspend parts of its leveraged finance operations after the regulator identified shortcomings in how it manages risk in that business, a person familiar with the matter said.

Deutsche Bank took remedial action within the given time frame but didn’t follow the ECB’s request to halt high-risk transactions until the issue was resolved, the person said, asking not to be identified discussing private information. The ECB made the non-binding recommendation earlier this year following a routine audit, the person said.

A Deutsche Bank spokesman said the lender doesn’t comment on its interactions with regulators. An ECB spokeswoman declined to comment on the news, which was reported earlier by the Financial Times.

Leveraged finance -- which usually involves lending to highly indebted companies as part of a takeover by a private-equity firm -- has long been an area of growth for Deutsche Bank under Chief Executive Officer Christian Sewing. The lender recently said it has gained market share in the business.

Deutsche Bank had 11 billion euros ($13 billion) of leveraged loans in its portfolio, it said in June. It had to write down the value on some of the loans when the pandemic hit earlier this year, even though the effect was mitigated by hedges, Bloomberg has reported.

Sewing has made improving relations with regulators a priority of his tenure. He has made progress on this front, with the ECB lowering capital requirements for the bank a year ago.

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