How stable is Germany’s Deutsche Bank?
By Peter Ryan
It is one of the biggest questions on financial markets at the moment — how stable is Germany’s Deutsche Bank?
Investors are starting to flee Germany’s biggest bank amid growing speculation that it might need assistance from the German Government.
Eight years after the Lehman Brothers collapse back in September 2008, US banks remain in recovery mode and European banks are weak in the wake of Eurozone debt crisis and negative interest rates.
So when a giant like Deutsche Bank runs into trouble, analysts are asking could history be about to repeat?
“Deutsche Bank is clearly a canary in a coal mine,” said Dr Cary Leahey of Decision Economics.
Dr Leahey did not see Deutsche as another Lehman Brothers — but said Deutsche had massive potential liabilities including a $US14 billion penalty from the US Justice department stemming back to the subprime mortgage crisis.
“People are quite concerned that even though in my humble opinion Deutsche Bank is fine, since you have other banks to work with, you may want to look elsewhere,” he said.
“What sparked all this was the possibility that various legal officials in the US may ask for a claims on Deutsche Bank in terms of fines, that they may not be able to meet.
“While they say they can meet it, they may not have enough capital on hand to meet the size of the potential that may be imposed on them.”
As a result, ten hedge funds trading with Deutsche Bank pulled or reduced their exposure — taking its shares down as much as 7 per cent on Wall Street overnight.
“If it was ready to default like Lehman it would be a huge deal that seems at the moment a remotely likely outcome, when push came to shove the German Government would have to get involved,” said Michael Shaoul, an analyst based in the US.
“In a sense it’s an artificial crisis at this point in time but it has the potential to become a real one.”
But the concerns about Deutsche Bank were amplified when another German Bank, Commerzbank, announced it would be cutting 9,000 jobs or a fifth of its workforce.
While unrelated, Wall Street Journal reporter Madeline Nissan said it comes back to another theme about the stability of big banks in the wake of the GFC.
“The question is now is how to reassure investors about the strength of major banks in a world of slowing global growth, negative interest rates and geopolitical worries like Brexit, and the possibility that Donald Trump could be the next US president,” she said.
