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5th Dec 2022

Nervous investors pull money from Deutsche Bank

  • Wall Street: "It is all about confidence now" (Photo: Dan Nguyen @ New York City)

Some hedge funds pulled money from Deutsche Bank (DB) on Thursday (29 September) prompting shares to fall further, as the German lender tried to reassure investors.

The Bloomberg news agency reported, citing an internal DB document, that 10 out of the banks 800 or so hedge fund clients had moved part of their holdings to other banks, naming Millennium Partners, Rokos Capital Management, and Capula Investment Management.

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  • Deutsche Bank paid bonuses worth €9bn to staff over past seven years (Photo: Bjoern Laczay)

The news prompted DB shares, which were already at historic lows, to fall by 6.7 percent on the New York stock exchange.

Demand for gold, a safe haven investment, also increased, pushing up prices by 0.3 percent.

The jitters come because of DB’s large debts and the risk that US fines, for mis-selling mortgage bonds, could destabilise Germany’s largest bank.

DB holds assets worth over $1.4 trillion (€1.25 trillion), half the size of the German economy.

It also has exposure to $51 trillion of derivatives, or complex financial instruments, meaning that its fall, like that of US bank Lehman Brothers in 2008, could cause an avalanche on world markets.

The poor health of the European banking sector was also highlighted on Thursday when Commerzbank, Germany’s second largest lender, announced that it would cut 7,300 jobs out of 50,000 due to low profits.

“It is all about confidence now. If a client has some derivatives at Deutsche Bank, he starts to think: ‘Will I get paid?’. Things can get out of hand quickly”, Julian Brigden, an analyst at Macro Intelligence 2 Partners, a US consultancy, told the New York Times.

Chris Wheeler, an analyst at Atlantic Equities, a UK bank, added: “The thinking is ‘Deutsche Bank is fine, but there’s a slim chance it might not be, so why leave my money in there?’.”

The German government has ruled out a state rescue of DB.

Politicians said that a rescue would harm German chancellor Angela Merkel because it would mean using taxpayers’ money to pay for US fines and for DB staff’s bonuses (€9 billion since 2009).

But Jeffrey Gundlach, the founder of US investment firm DoubleLine Capital, told the Reuters news agency: “The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be.”

The German bank itself said in a statement that “the vast majority of them [its clients] have a full understanding of our stable financial position”.

Barry Bausano, the head of DB’s hedge fund business, told the CNBC broadcaster that the 10 pull-outs were part of normal “ebbs and flows” and that the bank’s problems are “a perception issue”.

Fabrizio Camelli, another DB executive, told German newspaper Sueddeutsche Zeitung: “We are doing better than it might seem from outside.”

Some independent analysts also said that DB is not like Lehman Brothers because it has cash reserves of over €220 billion and because the European Central Bank (ECB) would buy its distressed assets if the cash ran out.

“Deutsche has many problems, but liquidity is not one of them … There can be no doubt that Deutsche could access significant additional liquidity from the ECB”, Stuart Graham, from the UK-based consultancy Autonomous Research, told Bloomberg.

The Austrian finance minister, Hans Joerg Schelling, also weighed in to calm fears of another systemic bank crisis.

“We don’t have a banking crisis, we have a profitability crisis in our banks”, he told the Reuters news agency.

He said that post-Lehman EU reforms would act as a prophylactic.

“That [another crisis] should not happen again given that we have the banking directive, the banking union, a common regulator, the single resolution mechanism, deposit guarantees set by EU rules - that means we have all measures in place on a European level to stabilise financial markets”, he said.

German bank woes prompt fear of EU crisis

Germany has denied reports that it was preparing to rescue its biggest lender, Deutsche Bank, amid concern over a new systemic crisis in Europe.

Analysis

Deutsche Bank crisis tests EU regulation

EU finance ministers insist that the bank's losses are not a systemic threat, but they revive the debate about the safeguards put in place after the financial crisis.

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