Deutsche Bank The Largest In Europe As Leverage Hits Market Valuation

Deutsche Bank AG (DBK), adding assets as other lenders trim their balance sheets, surpassed France’s BNP Paribas SA (BNP) to reclaim the title of Europe’s largest bank.

Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years.

Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money.

“Deutsche Bank has been pretty decidedly opposed to reducing its balance sheet,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment. “It’s understandable: The higher your leverage, the higher the returns when times are good. They want to cut as little as possible to keep doing as much business as possible.”

The higher leverage also makes Deutsche Bank’s earnings more volatile and dependent on market swings. When debt markets rallied in 2009, the bank posted a return on average equity of 14.6 percent. The following year, as Europe’s sovereign-debt crisis roiled investors, that measure of profitability fell to 5.5 percent. It stood at 8.2 percent last year, Bloomberg reported.