Deutsche Bank lows and woes fuel existential fears

FRANKFURT - Agence France-Presse

Deutsche Bank once epitomized the best of Germany’s financial sector, shining brightly as the European economic powerhouse’s biggest lender.

But this week its share price slid to new lows, fuelling concerns about the health of the institution, with some even questioning if it has a long-term future and the IMF moved to see it as a “systemic” risk to global finance.

The price of Deutsche Bank shares slumped to an all-time closing low of 11.44 euros on July 7.    

That means they have lost a staggering 49 percent in value since the beginning of the year and are the worst performing stock in the blue-chip DAX 30 index.    

Over a 10-year period, the drop is even more alarming: in May 2007, before the sub-prime crisis erupted, Deutsche Bank shares had hit the giddy heights of more than 100 euros.

Contacted by AFP, the bank did not want to comment on the development, which has repeatedly fuelled speculation that Deutsche Bank could seek to raise fresh capital.

Like most of its European rivals, “Deutsche” as it is simply known, has been battered in recent weeks by uncertainty related to the British vote to quit the European Union.     

In addition, the chronic weakness of the Italian banking sector is feeding investor concerns about the solidity of other European institutions.  

Such factors are hitting the sector as a whole.

But in combination with what are perceived to be Deutsche Bank’s own in-built weaknesses, the bank was recently described by the International Monetary Fund as “a major source of systemic risk in the global financial system.”    

Deutsche Bank, which has total assets of more than 1.6 trillion euros ($1.8 trillion) and a workforce of 100,000, “appears to be the most important net contributor to systemic risks in the global banking system, followed by HSBC and Credit Suisse,” the IMF wrote in a study in June.  
  
The U.S. Federal Reserve last week revealed that Deutsche’s U.S. arm failed two sets of stress tests in a row.             
“Deutsche Bank’s decline has been spectacular,” a source at a major European bank told AFP.     

Certainly, long gone are the days when Deutsche Bank was seen as Germany’s financial pride and joy, a leading global player with the proud ambition of attaining a return on capital of 25 percent.  That was the era of the then chief executive Josef Ackermann, and it was at this time, too, that the rot set in.

Since then, a seemingly endless list of scandals and malpractices has come to light and Deutsche Bank has become engulfed in nearly 8,000 litigation cases all over the world.

At the same time, it is pressing ahead with a fundamental overhaul, while also battling an environment of extremely low interest rates and much tougher banking sector regulation.

All these factors pushed the group into a massive loss of nearly seven billion euros last year while its closest German rival Commerzbank, much more modest in size, notched up a profit of around one billion euros.  
   
Adding to its humiliation, Deutsche Bank was compelled to waive the dividend payment to its shareholders both this year and next year, which it had managed to avoid even at the height at the financial crisis.  

Within the bank itself, the mood is grim.     

Less than half of staff say they are proud to be working for Deutsche Bank, according to a recent study published by the group itself.

More and more people are quitting. On July 6, it was the head of foreign exchange and emerging market debt trading, Ahmet Arinç, according to a number of media reports.  

“There are very real concerns on the financial markets about the bank. It’s got a lot of problems. And it’s also got huge exposures on the derivatives markets. Many people are concerned it could turn into a new Lehman,” one Frankfurt-based financial source told AFP, speaking on condition of anonymity.

The U.S. investment bank Lehman Brothers collapsed in 2008, triggering a global financial crisis followed by a eurozone debt crisis in the summer of 2011.     

Briton John Cryan, who took over as Deutsche Bank’s chief executive a year ago, has promised to slash costs, trim the balance sheet and boost profitability and focus on digital banking.  
   
The strategic overhaul will entail cutting 3,000 jobs in Germany and closing 188 branches.