John Cryan, Deutsche Bank’s CEO
Deutsche Bank Hard Pressed for $14 Billion To The US:
In the international banking market Deutsche Bank fell to a record low amid concerns the bank would have to pay $14 billion to US Department of Justice authorities in legal costs and settlements over an investigation into sales of mortgage-backed securities.
The slide in Deutsche shares dragged the financials sector of the S&P 500, making it the biggest loser on Monday.
Through Jonathan Garber from Business Insider on September 9, 2016 5:15 Eastern time:
Deutsche Bank stock fell more than 6% today September 9, 2016. All this occurring after a report from William Canny at Bloomberg reporting and suggesting that a number of hedge funds clients have started shifting business to other banks.
The slide marks the seventh decline in 10 days as worries persist over the health of the German investment bank.
On Monday, shares of Deutsche Bank fell to a record low amid concerns the bank would have to pay $14 billion to US authorities in legal costs and settlements over an investigation into sales of mortgage-backed securities.
In a memo to employees, the bank said that it has “no intention to settle these potential civil claims anywhere near the opening position of $14 billion” and that it had no plans to raise capital. Additionally, the German government has said that it will not bailout out the bank.
Deutsche Bank is not the only German lender to make headlines as of late. On Thursday, Commerzbank, Germany’s second largest bank, said it was eliminating about 10,000 jobs, or more than 20% of its labor force, in a restructuring effort.
Two German banks pulled issuance because of marketing pricing in the environment. It is a flash point for the broader credit markets, should we be worried about this at this point?
When you have bank risk flare ups they do tend to filter through the rest of the banking sector and they can be pressure points toward a speed bump that spreads. We need to keep an eye on this. Were in a situation where we feel comfortable that the fine that is being proposed to Deutsche bank is manageable within the context of Deutsche Capital and Deutsche’s future ability to raise capital. And clearly the numbers from the US Department of Justice are big and we expect them to come down, to a manageable level where Deutsche can afford those kinds of fines.
It is a pressure point for the market. It’s generally a catalyst for broader risk aversion. This is the second flare up in risk for this bank this year. We have another situation where there is risk flare up in the Italians. It’s part of a bigger issue that when you have these lumpy fines or lumpy idiosyncratic events for banks because the bank revenue stream is being hampered by what the ECB’s doing and backdrop of rates it makes it difficult for the banking sector to grow their way out of problems and this to me is why were constantly having flare ups in bank risks this year.
If banks were more profitable and if interest rates were higher, then we could believe that banks could grow their way out of some of these issues that are evolving this year. But the very difficult rates backdrop is meaning there is very little margin for error for banks to circumvent these kind of issues that come up.
There’s a more important issue where banks needing state aid we now know we live in a regime where governments can’t give aid to banks without having to bail in senior bond holders and that is a risk that we’re starting to talk about with the Deutsche situation and of course that may never evolve depending on the size of the fine. We know we can’t rely on state aid that we used to in the old days without it being more detrimental for bond holders. This is a legitimate move in the senior CDS.
Looking at profitability in actual lending. The euro stocks bank which has really pummeled in the last few weeks. The lending in euro area. Lending’s holding up, profitability, bank stocks rolling over.
Certainly, all these is tell tale signs suggesting when you have bank risk flare ups they do tend to filter through the rest of the banking sector and they can be a pressure point toward a speed bump that spreads.