FRANKFURT: Deutsche Bank shares rose more than 3 percent on Friday, a day after its U.S. subsidiary failed a second part of the U.S. Federal Reserve's annual stress tests.
The Fed, which regularly checks banks' financial strength, had cited "widespread and critical deficiencies" in Deutsche's capital planning controls.
The Fed's criticisms mark another blow for the German bank which is trying to revive profitability and whose shares are down 41 percent this year.
"It does seems like Deutsche Bank at the moment is the worst student in the class that can't get anything right," said Octavio Marenzi, CEO of consultancy Opimas.
The Fed's assessment could spook clients in the U.S. just as the bank tries to regain its footing there, Michael Huenseler, head of credit portfolio management at Assenagon, said.
"The U.S. plays a major role for their investment banking revenues and if the U.S. doesn’t deliver the results they are expecting, what else does compensate for this? That is really a concern," Huenseler said.
The Fed's assessment follows months of turmoil at Deutsche.
The bank abruptly reshuffled management in April after three consecutive years of losses. It then began plans to scale back its global investment bank to refocus on Europe and its home market. It has flagged cuts to U.S. bond trading, equities and the business that serves hedge funds.
Others analysts said the problems highlighted by the Fed were nothing new.
Goldman Sachs wrote in a note to clients that the Fed's issues with Deutsche in the U.S. were "long standing" and "not new" despite the Fed's harsh wording.
"Against this backdrop we do not believe the Fed's objection on qualitative grounds will come as a surprise to market participants," Goldman Sachs said.
Shares in Deutsche Bank were 3.3 percent higher at 9.35 euros by 0803 GMT, outperforming the broader DAX index, which was 1.5 percent higher. The stock reached a record low of 8.76 euros on Wednesday.
The overall impact will be limited, said Opimas' Marenzi. The bank may need to invest just about US$10 million in additional stress testing technology and external consultants. "We aren't talking about billions," he said.
Deutsche Bank said in a statement on Thursday it had made significant investments to improve its capital planning capabilities as well as controls and infrastructure at its U.S. subsidiary and would work with regulators to build on these efforts.
The European Central Bank, which oversees Deutsche Bank, declined to comment.
(Reporting by Tom Sims; additonal reporting for Frank Siebelt; editing by Maria Sheahan and Jane Merriman)