NEW YORK (AP) -- Shares of several big European banks fell in U.S. trading Friday after Goldman Sachs analysts downgraded shares of Germany's Deutsche Bank. The analysts say it's likely that the U.S. Federal Reserve will formally adopt a proposal to require large foreign banks to keep a bigger financial cushion against unexpected losses for their U.S. affiliates.
THE SPARK: The Goldman Sachs analysts downgraded the rating for Deutsche Bank to "Sell" from "Neutral." They said in a research note that the Fed's rules, proposed in December, have "a reasonable likelihood of being adopted." Among European banks, the new capital reserve requirements likely would have the greatest impact on Deutsche Bank, the analysts said.
THE BIG PICTURE: The Fed proposal, which was mandated by the 2010 financial overhaul law, is aimed at preventing another financial crisis. The rules would apply to those foreign banks with $50 billion in worldwide assets that operate in the U.S. That means their U.S. affiliates would be subjected to the same capital requirements as U.S. banks. The U.S. operations would have to take the form of a bank holding company, putting them under the Fed's oversight.
The rules wouldn't take effect until July 2015. The Fed estimates that about 100 foreign banks would be affected.
In addition to Deutsche Bank, foreign banks that have both worldwide assets and assets in the U.S. of at least $50 billion each include British banks HSBC and Barclays, Canada's TD Bank and Dutch bank ING.
THE ANALYSIS: Under the new requirements, Deutsche Bank would have to transfer an estimated $13 billion to its U.S. affiliate, the Goldman Sachs analysts said. They said such a transfer would sharply reduce the bank's capital reserves outside the U.S. and could increase pressure for it to raise new capital.
In addition, Deutsche Bank's target for return on equity could be reduced to less than 10 percent — possibly 7 percent to 8 percent — from the current 12 percent, according to the analysts.
SHARE ACTION: Deutsche Bank AG shares fell $2.16 to $43.57 in afternoon trading on the New York Stock Exchange. The shares have traded between $27.03 and $53.12 over the past 52 weeks. Barclays PLC shares slipped 37 cents to $18.17 and ING Groep NV declined 16 cents to $7.84.