This minor change in asset holding strategy is likely to result in improved results, reduced risk tolerance, and at reduced costs.
As part of a strategic decision to boost profitability, Deutsche Bank’s Chief Financial Officer stated, it plans on holding a larger portion of its 270 billion euros in liquidity buffers in securities rather than cash.
“Of (our liquidity reserves) about 200 billion euros is in cash. So it doesn’t take very much in terms of incremental risk tolerance to move the needle pretty significantly,” said James von Moltke on an analyst call discussing third-quarter earnings.
He went on to add, “We think we can generate 50 to 100 basis points of additional yield without taking really a significant risk or certainly well within our risk appetite”.
The underlying reason behind the decision is that parking cash at the German central bank costs Deutsche Bank 0.4% in interest, while placing investments in safe-haven government bonds will yield at least some return.
Since 2016, Deutsche Bank has been managing its liquidity more strictly than its peers; the change in approach is likely result in ratings agencies being more comfortable with Deutsche’s new policy, said von Moltke.