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Deutsche Bank, headquartered in Frankfurt, changes hands at 75 per cent of tangible book value.

Ralph Orlowski/REUTERS

The big banks can't get rid of their riskiest assets fast enough.

Deutsche Bank is selling €16-billion ($21.6-billion) of risk-weighted assets stuffed in a credit portfolio, according to International Financing Review.

The sale is part of a €100-billion endeavour by the German bank to unload some of its riskiest assets and get capital levels up to snuff. Under Basel III, global banks must have tangible common equity that amounts to at least 7 per cent of their risk-weighted assets, and Deutsche was one of the worst capitalized banks at the height of the financial crisis.

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But de-risking is also a priority at other global giants, including Royal Bank of Canada, whose capital ratios are already in line with the new standards. Scaling back is seen as necessary in order to become much more mundane, and much safer.

RBC held an investor day in June tailored to its capital markets division and noted just how much effort it was making to focus on risk management, including adding people in the back office to manage risk.

More importantly, the bank said it had dramatically cut its trading inventory. Between the third quarter of 2011 and June, 2012, RBC slashed its trading book to $118-billion from $151-billion. With a Tier 1 common ratio of 10.5 per cent as of year end, RBC is now well above the new global standards – however, the bank's total risk-weighted assets have grown the past few years. In 2010 total RWA amounted to $260-billion; today they're $280-billion.

UBS is also shedding assets. As part of its major strategic review announced last October, the Swiss bank said it wants to get its risk-weighted assets down to less than 70-billion swiss francs ($77-billion). Credit Suisse, too, has been very public about its intentions to de-risk.

The new book of assets being sold by Deutsche is known as a correlation portfolio, and International Financing Review notes that other banks have sold off similar portfolios, including Credit Agricole. The buyer in that deal was credit hedge fund BlueMountain Capital.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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