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Germany preparing Deutsche Bank bailout plan, reports claim Europe's banks 'not investable' says top banker amid Deutsche Bank crisis
(about 7 hours later)
The German government is working on an emergency rescue plan for Deutsche Bank, according to information obtained by newspaper Die Zeit, contradicting a statement from the bank’s chief executive that state aid is “out of the question”. One of Europe’s most senior bankers has said the embattled sector is “not really investable”, in remarks that underline the difficulties the continent’s big banks could face if they have to raise new funds.
Angela Merkel’s government is preparing a two-stage plan for the “worst case scenario”, whereby the US justice department imposes a $14bn penalty on the bank for mis-selling mortgage bonds a decade ago, while Germany’s biggest lender fails to raise enough capital to pay the potential fine. Tidjane Thiam, chief executive of Credit Suisse, issued the warning about the problems the sector faces as the focus remained on Deutsche Bank and its battle to reduce a $14bn (£10.5bn) penalty from the US authorities for mis-selling mortgage bonds.
On Wednesday the German government raced to deny a report that it was preparing a bailout plan under which it might take a 25% stake in Deutsche Bank, which is the country’s biggest bank. With assets half the size of the German economy it is regarded as the bank that poses the biggest risk to global financial stability.
Shares in Deutsche Bank have plunged to near-30-year lows this week amid reports – which were then denied – that it had asked forGerman government intervention to help reduce the punishment from the US Department of Justice (DoJ). Their decline was arrested on Wednesday, when the bank sold a UK insurance company for €1bn; they closed 2% higher at €10.76.
Thiam told a Bloomberg conference that Europe’s banks were in a “very fragile situation” and said there was doubt that European banks still had a viable business model. Concerns about rock-bottom interest rates and how much capital banks should hold meant returns to investors were too low, making banks “not really investable”.
Credit Suisse is among a number of other banks, including Barclays, facing a penalty from the DoJ.
Fears that Deutsche Bank might have to tap its investors for cash are among the reasons its shares have plunged, and raised fears that it could present a Lehman Brothers-style moment for the markets. However, top bankers and policymakers all played down the prospects of a repeat of the collapse of Lehman in 2008.
John Cryan, the Briton who has run Deutsche Bank for 15 months, spoke out to insist he had not asked Angela Merkel, the German chancellor, for help in dealing with the DoJ in an attempt to arrest the decline in the bank’s shares.
“At no point did I ask the chancellor for support. Neither did I suggest anything like that,” he said. Such a request would be “out of the question” and he could not understand how “anyone could claim that”. The claims were raised last week in a German magazine.
Within hours of his remarks to Bild newspaper a report in Die Zeit set out a two-stage plan being prepared by Merkel’s government for the “worst case scenario”, under which the DoJ settlement is not reduced and Germany’s biggest lender fails to raise enough capital.
In an article to be published on Thursday, Die Zeit claims that the first stage would involve attempting to find a solution, with Deutsche Bank selling parts of its business to a German or foreign company, and the state issuing guarantees for potential losses.In an article to be published on Thursday, Die Zeit claims that the first stage would involve attempting to find a solution, with Deutsche Bank selling parts of its business to a German or foreign company, and the state issuing guarantees for potential losses.
The second stage, which would only apply if such a private solution were to fail, would involve a state-sponsored bailout. The second stage, which would only apply if such a private solution were to fail, would involve a state-backed bailout.
According to Die Zeit’s research, shared with the Guardian, the German government is “debating a state takeover of as much as 25%” of the bank. This might facilitate a merger with Commerzbank, which is 15% state owned. According to Die Zeit, the German government is “debating a state takeover of as much as 25%” of the bank. This might facilitate a merger with Commerzbank, which is 15% state owned.
The report, which was denied by the German finance ministry and financial regulator, came hours after John Cryan, the chief executive of Deutsche Bank, told German newspaper Bild that the bank did not expect to pay as much as the US Department of Justice has been demanding. The reportwas denied by the German finance ministry and financial regulator. Martin Jäger, a spokesman for the German finance ministry, said: “The German government is not preparing a rescue plan and there is no reason for such speculations.”
Speaking at a press conference in Berlin, Martin Jäger, a spokesman for the German finance ministry, said: “The German government is not preparing a rescue plan and there is no reason for such speculations.” Cryan gave the interview as Deutsche Bank sold its Abbey Life insurance business, with 735,000 UK policyholders, for €1bn (£860m). This will generate an €800m loss for the German bank, but improve its financial strength by making it smaller.
Cryan gave the interview as Deutsche Bank pressed on with selling off assets to bolster its capital position, and senior bankers and policymakers insisted that the problems facing Germany’s biggest bank were not comparable with Lehman Brothers, which collapsed in 2008, a major cause of the global financial crisis. The bank also told its staff that it was not planning to raise capital or in need of state aid, although speculation about possible options for its future included a bid from a new Turkish national wealth fund. Bloomberg reported that Yiğit Bulut, a chief adviser to the Turkish president, Recep Tayyip Erdoğan, had suggested Germany’s largest lender should be made into a Turkish bank.
Cryan, who has been the helm of Deutsche Bank for nearly 15 months, told Bild that, contrary to reports, he had not asked Merkel, the German chancellor, for help. Christine Lagarde, managing director of the International Monetary Fund which has ranked Deutsche Bank as the world’s riskiest bank, said state help was not needed. Speaking to CNBC, Lagarde said: “I don’t see that particular institution as ... at a stage where state intervention is absolutely called for at the moment. I would hope that the right measures are taken internally so that the whole financial sector in Germany is solid and that systemic players [are] strengthened.”
“At no point did I ask the chancellor for support. Neither did I suggest anything like that,” he said. Such a request would be “out of the question” and he could not understand how “anyone could claim that”. Axel Weber, the chairman of UBS and former president of the German Bundesbank, said fears of a rerun of the 2008 banking collapse were misplaced. He said banks had between seven and 10 times more capital than eight years ago. The deputy Bank of England governor Minouche Shafik also played down any comparison.
Deutsche Bank, which has assets worth 50% of the German economy and is a key player in the global financial system, has seen its share price fall by more than 50% this year.
The shares have reached a near-30-year low, but were up by 1% to €10.74 by mid-morning on Wednesday, after falling as low as €10.19 on Tuesday. The shares traded at about €100 before the financial crisis.
Axel Weber, the chairman of UBS and former president of the German Bundesbank, said fears of a rerun of the 2008 banking collapse were misplaced. He pointed out that banks had between seven and 10 times more capital than eight years ago.
The deputy Bank of England governor Minouche Shafik also played down any comparison.
Weber told Bloomberg TV: “There is a much more stable system. In my view the system is much more stable now. I think we are very far in how solid banks are now, from where were in 2007 and 2008.”Weber told Bloomberg TV: “There is a much more stable system. In my view the system is much more stable now. I think we are very far in how solid banks are now, from where were in 2007 and 2008.”
Cryan, who is trying to cut costs at Deutsche Bank and sell off parts of the company, has sold its insurance business Abbey Life for €1bn (£860m). While this will generate a €800m loss for the German bank, it will improve Deutsche Bank’s financial strength.
Some analysts have suggested that he could sell the bank’s asset management business to raise funds. However, speaking as the Abbey Life sale was announced, Cryan said: “Deutsche Asset Management will continue to focus on its core businesses. This transaction will also strengthen Deutsche Bank’s capital position. We continue to build a simpler and better Deutsche Bank.”
A state-sponsored bailout for Deutsche Bank would be highly embarrassing for the lender. In 2008, its former chief executive Josef Ackermann said he would be “ashamed” to take money from the German government, which has been especially tough on limiting state aid for ailing banks in southern Europe.
Any bailout would also come with considerable economic risk. A rule that came into force across the EU at the start of the year stipulates that no bank can be bailed out with public money until creditors accounting for at least 8% of the lender’s liabilities have contributed towards footing the bill. Deutsche Bank’s bondholders would therefore become a high-profile test case for the bail-in regime.