Watchdog bent rules to help Deutsche Bank pass health test

EUROPE’S banking watchdog bent the rules to give troubled lender Deutsche Bank an easy ride, it is claimed.

The German firm was given a pass in an European Central Bank stress test in July – providing temporary respite amid concerns about its future.

Deutsche has since used the test, designed to examine how institutions would fare in another major downturn, as evidence of its good health. But a footnote reveals that the results included £3.2bn raised from a sale which has still not gone through.

Critics claimed this artificially inflated Deutsche’s balance sheet and was fresh evidence of European Union hypocrisy on finance rules.

Conservative MP Jacob ReesMogg, a Eurosceptic member of the Treasury Select Committee, said: ‘The point of stress tests is that they should do what they say and be rigorous in their analysis. If they become an exercise in window dressing, they do nothing to prevent future bailouts.

‘Once again, it makes people think the European monitoring system is much more a political confection than an economic one.’ The ECB agreed that Deutsche could include the £3.2bn being raised by selling its stake in Chinese lender Hua Xia. This deal had not been completed by the end of last year – the official cutoff point for inclusion – and is still unfinished, although the bank expects it to go through this year.

Deutsche would still have passed the test, even without the cash being included. But critics said it fostered an impression of cosy links between the Frankfurt-based regulator and Germany’s largest bank.

Spanish financier Caixabank completed a £2.4bn sale in March but the ECB would not allow it to include the proceeds.

Traders also fret Deutsche could fail to reach a deal with the US Department of Justice over an £11.3bn bill for selling toxic mortgage debt. The bank is desperately trying to negotiate this down. But sources said crunch talks over the weekend involving chief executive John Cryan did not lead to an agreement.

The ECB said it treated all banks equally ‘in line with regulation’. Deutsche declined to comment.