By Paul J. Davies 

Deutsche Bank's biggest problem isn't just that it needs capital, but that it will find it very hard to raise any.

The German lender's stock keeps hitting multi-decade lows, which means an equity issue would be very costly. But that isn't all. Whatever the valuation, Deutsche will struggle to convince investors that it can make a return that beats its cost of capital in the years ahead.

The bank faces all the problems that plague its peers, but it has most of them worse than rivals. Its costs are among the highest, its balance sheet among the most bloated and its longer-term profitability one of the least attractive.

It has been apparent for some time that Deutsche would need extra capital to meet expected requirements in 2019 when all post-crisis rules come fully into force. And that is before taking into account further balance-sheet inflation coming from regulators and the costs of fines and penalties.

Deutsche's pending costs to settle U.S. mortgage bond probes are potentially more damaging to its capital than for rivals. But what is more, any settlements will create a 10-year earnings drag by adding even more unproductive operational risk assets to a balance sheet that already generates weaker profits than peers.

Deutsche is still Europe's leading investment bank by revenue, but it is losing ground globally to U.S. rivals and some European peers are catching up.

Plus, it produces fewer revenues for the size of its balance sheet than peers. Its sales and trading revenue per unit of risk-weighted assets in the first half were less than three-quarters of what Société Générale made and barely more than half of what Credit Suisse made.

Deutsche's operational risk-weighted assets, which add to capital charges without generating any revenue, are already about 25% of its group balance sheet. But in its main markets business that could rise as high as 40%. That is a hefty burden of unproductive assets.

The bank also has higher leverage than many peers. This can be seen in the low level of riskiness it assigns to its assets, which makes it vulnerable to changes due from global rule makers as they try to squeeze out the excess variability in banks' internal risk models.

There are no quick fixes to any of this. A sale of its asset management business might bring in some money but would weaken long-term returns. A merger with Commerzbank could create efficiencies at a cost, but would still leave it competing with the local savings and regional banks that don't need to make profit for shareholders.

But perhaps the biggest problem is that Deutsche never really made fantastic profit. There is only one year in the past 15 when its net income was high enough that it would produce a 10% return on today's equity base: That was in 2007 when Deutsche was one of the most highly leveraged banks in the world.

Deutsche's problem isn't that it can't survive, it is that few investors will be interested when it does.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

September 27, 2016 10:25 ET (14:25 GMT)