Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Deutsche Bank Improved Its Capital Ratio By Changing Risk Measures

Anshu Jain, co-CEO of German's biggest bank, Deutsche Bank
Daniel Roland | AFP |Getty Images

In the go-go years before the financial crisis, banks were regularly rewarded for aggressively playing with their numbers. Banks that could show rising returns on equity saw their share prices soar. Banks that played it safer saw shares fall. Naturally, this pushed banks to become ever more aggressive about the way they accounted for their assets.

One of the nice things about the financial crisis was that investors started punishing companies that seemed to play games with their numbers. Think of all the heat David Einhorn was able to bring to bear on Lehman Brothers and chief financial office Erin Callan. This encouraged nearly everyone to 'fess up to losses.

Now it seems we're back to the bad old days.

On Thursday, Deutsche Bank announced that it had boosted its capital ratio—and immediately saw its stock soar.

What made the capital ratio boost so unusual, however, was that Deutsche Bank didn't do very much by way of the the real world things banks can do to boost their capital ratio.