Analyst says crisis far from over

Bloomberg

"We are in the middle of it," Banziger, 53, said Monday at the Frankfurt School of Finance and Management. The industry has an opportunity to build a stable financial system that seeks higher capital buffers, while encouraging investors to return money to the market and help stem the crisis, he said.

In February, Deutsche Bank reported its first annual deficit in more than 50 years after the worst financial crisis since the Great Depression pummeled bond and stock trading. The crisis has caused almost $1.3 trillion in losses for financial companies worldwide, a total that may climb to more than $3 trillion, Banziger said Monday, citing forecasts. Deutsche Bank skirted the worst of the U.S. subprime mortgage collapse by betting against the bonds that contributed to credit losses and writedowns at the world’s largest financial companies and forced government-led bailouts.

The German bank has booked about 9.3 billion euros in writedowns since the start of the U.S. subprime mortgage crisis in 2007. UBS in Zurich has had $50.6 billion of costs and Citigroup $88.3 billion, according to data compiled by Bloomberg.

Banziger said credit spreads are higher than before Lehman Brothers Holdings collapsed last year, which he said signaled the crisis was far from ending.

The cost of protecting European corporate bonds from default rose, according to traders of swaps. Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings rose 33 basis points Monday to 943, according to JPMorgan Chase. The index is a benchmark for the cost of protecting bonds against default, and an increase signals deterioration in the perception of credit quality.

Deutsche Bank is resisting pressure to take government aid or raise additional capital to protect existing shareholders that have seen the value of their stock decline, Banziger said.

"One of my top priorities is to make sure that those who lost money recover it," Banziger said. Protecting shareholder value is "our deep philosophy" and Deutsche Bank’s management "will stand by this."Deutsche Bank has several times raised a goal for Tier 1 capital, a key measure of solvency, Banziger said. The bank’s Tier 1 ratio is 10 percent, which may be insufficient in the future, he said.