Deutsche Bank AG plans to change the legal status of its main U.S. subsidiary to avoid having to inject billions of dollars of capital into it under new regulations, a source close to the German lender said.
Under the Dodd-Frank financial reform law that Congress passed last year in the wake of the financial crisis, Deutsche Bank would have had to inject capital into Taunus Corp, its main U.S. unit, the source who was briefed on the situation said.
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Taunus is a holding company for the German lender's main U.S. operating subsidiaries -- broker-dealer Deutsche Bank Securities Inc and banking arm Deutsche Bank Trust Corp. It also holds several other companies, including limited liability companies and special purpose vehicles.
Taunus is under-capitalized and under the new law it would have needed fresh capital because of its status as a bank holding company, even though both the broker-dealer and the bank have sufficient capital, the source said.
Under the plan, developed late last year, Deutsche Bank will give up the bank holding company status for Taunus, taking away that need, the source said, who requested anonymity because he was not authorized to speak publicly about the matter.
The bank, Deutsche Bank Trust Corp, will become a direct subsidiary of the German parent, while Taunus will continue to hold the broker-dealer and other companies, the source said.
In its April 5 invitation to its annual general meeting on May 26, Deutsche Bank said it would change the legal status of its U.S. branch offices to meet stricter capital requirements and reporting duties.
A spokesman for the bank declined to comment when called by Reuters, referring only the AGM invitation.
The broker-dealer and the bank would still have oversight from the regulatory bodies that currently oversee them, the source said.
The group's shares were up 1.6 percent, outperforming Germany's benchmark DAX, which was up 1.1 percent.
Chief Executive Josef Ackermann said in early April that there was no need to raise the bank's capital, after it had carried out Germany's biggest capital hike in a decade in October.
At the time, the lender raised its equity by 10.2 billion euros ($14.76 billion) earmarked for buying the rest of Deutsche Postbank and meeting new bank capital rules.
As part of the U.S. reorganisation, Deutsche Bank is asking its shareholders to approve a partial profit and loss transfer agreement between Deutsche Bank AG and Deutsche Bank Financial LLC, Wilmington, according to the AGM invitation.
The German lender's New York branch is to be recognized as an independent business entity and to be taxable as a "corporation" for U.S. federal income tax purposes, according to the invitation.
In March, the Bank prepared to bolster the equity buffer of its Spanish branch office after Spain demanded that Deutsche Bank inject more capital into the business. 1/8ID:nLDE7292H0 3/8
(Reporting by Paritosh Bansal in New York, Edward Taylor and Ludwig Burger in Frankfurt; Editing by Mike Nesbit)
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