Saturday

17th Feb 2018

German bank woes prompt fear of EU crisis

  • Frankfurt skyline, with Deutsche Bank twin towers on the right (Photo: barnyz)

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

“The German government is not preparing a rescue plan and there's no reason for such speculation”, Martin Jaeger, a German finance ministry spokesman, said on Wednesday (28 September).

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • Lehman collapse in 2008 prompted global banking crisis (Photo: sachab)

Christine Lagarde, the head of the International Monetary Fund (IMF), also tried to reassure markets, telling US broadcaster CNBC: “I don’t see that particular institution as ... [being] at a stage where state intervention is absolutely called for at the moment.”

The bank’s CEO, John Cryan, told German newspaper Bild one day earlier that “at no point did I ask the [German] chancellor for support” and that a rescue was “out of the question”.

Their comments came amid reports to the contrary in German media.

German newspaper Die Zeit said on Wednesday that Berlin had prepared a rescue package which involved either state guarantees for Deutsche Bank losses or taking a 25 percent stake.

The head of the European Central Bank (ECB), Mario Draghi, also gave weight to the speculation.

Reacting to accusations that low interest rates had reduced lenders’ incomes and undermined Deutsche Bank, he told German MPs on Wednesday: “If a bank represents a systemic threat for the eurozone, this cannot be because of low interest rates - it has to do with other reasons”.

Deutsche Bank's problems arise from its high level of debt and from US fines over allegations that it mis-sold mortgage bonds.

The US has demanded $14 billion (€12.5bn), but analysts said that if the German lender paid more than $4 billion it could become unstable.

It also faces other potential fines - over allegations that it manipulated exchange rates, that it helped Russia to evade sanctions, and over alleged money laundering.

Lehman 2.0?

The bank employs 100,000 people and has assets worth €1.4 trillion - half the size of the German economy.

Its ill health means that its shares are worth just €14.5 billion in total - a 30-year low - however.

Its so-called Tier 1 Ratio - the ratio of its best assets to its liabilities - is also far below that of major European lenders.

The IMF described it in June as “the most important net contributor to systemic risks” in the global financial sector because its fall could cause the same domino effects as that of the Lehman Brothers bank in 2008.

Norman Lamont, the former UK chancellor, told British newspaper The Times on Wednesday that: “The biggest threat to Europe is a banking crisis ... Italian banks are in a very serious situation. I think German banks are probably in a very serious situation too.”

Tidjane Thiam, the CEO of Credit Suisse, told the Bloomberg news agency that EU banks were in a “very fragile situation” and that several large lenders were “not really investable”.

But Axel Weber, the chairman of Swiss bank UBS and the former head of the German central bank, played down the concerns.

“The system is much more stable now. I think we are very far in how solid banks are now, from where were in 2007 and 2008,” he told Bloomberg.

Political risk

If the German state was to intervene, under new EU rules, it would first have to let private bondholders take a hit of at least 8 percent of the bank's liabilities.

Meanwhile, the fact that chancellor Angela Merkel is heading into elections next year has heightened the political stakes.

Hans Michelbach, a senior MP in her CDU party, said on Wednesday that it would be “unimaginable” to use taxpayers’ money to pay US fines because there would be a “public outcry.”

Sahra Wagenknecht, an MP from the far-left Die Linke party, said Deutsche Bank was "a ticking time bomb in the lap of the taxpayer".

Agenda

ECB, Budget, EU elections This WEEK

EU leaders will gather to begin talking about the 2019 election process and the post-2020 budget, while eurozone finance ministers will ponder choosing the next European Central Bank deputy chief.

Baltic states demand bigger EU budget

The leaders of Estonia, Latvia, and Lithuania say in a joint letter that they are open to talks on creating "new own resources" for a bigger EU budget after the UK leaves the EU.

Agenda

ECB, Budget, EU elections This WEEK

EU leaders will gather to begin talking about the 2019 election process and the post-2020 budget, while eurozone finance ministers will ponder choosing the next European Central Bank deputy chief.

News in Brief

  1. Merkel: Nord Stream 2 pipeline poses 'no danger'
  2. Spanish king in Barcelona next week
  3. Turkey jails journalists for life
  4. Make budget cuts in farm and regional funds, the Dutch say
  5. UN: Hungary's anti-migration bill is 'assault on human rights'
  6. Journalist Deniz Yucel freed in Turkey
  7. New organic farming bill not ready until late spring
  8. Commissioner: Western Balkans in EU is 'obvious'

Stakeholders' Highlights

  1. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  2. EPSUMovie Premiere: 'Up to The Last Drop' - 22 February, Brussels
  3. CESICESI@Noon on ‘Digitalisation & Future of Work: Social Protection For All?’ - March 7
  4. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  5. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  6. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP
  7. Macedonian Human Rights Movement Int.Suing the Governments of Macedonia and Greece for Changing Macedonia's Name
  8. Dialogue PlatformBeyond the Errors in the War on Terror: How to Fight Global Militarism - 22 February
  9. Swedish EnterprisesHarnessing Globalization- at What Cost? Keynote Speaker Commissioner Malmström
  10. European Friends of ArmeniaSave The Date 28/02: “Nagorno-Karabakh & the EU: 1988-2018”
  11. European Heart NetworkSmart CAP is Triple Win for Economy, Environment and Health
  12. European Free AlllianceEFA Joined the Protest in Aiacciu to Solicit a Dialogue After the Elections

Latest News

  1. EU asks charities to explain anti-abuse measures
  2. ECB, Budget, EU elections This WEEK
  3. EU states stay mute on implementation of mercury bill
  4. Baltic states demand bigger EU budget
  5. Germany raises concerns over Hungary's 'Stop Soros' bills
  6. EU ties Brexit transition talks to divorce agreement
  7. EU divided over Western Balkan enlargement
  8. Facebook and Twitter weak on protecting users, says EU

Stakeholders' Highlights

  1. EPSUDrinking Water Directive Step Forward but Human Right to Water Not Recognized
  2. European Gaming & Betting AssociationGambling Operators File Data Protection Complaint Against Payment Block in Norway
  3. European Jewish CongressEJC Expresses Deep Concern Over Proposed Holocaust Law in Poland
  4. CECEConstruction Industry Gets Together to Discuss the Digital Revolution @ the EU Industry Days
  5. Mission of China to the EUChina-EU Relations in the New Era
  6. European Free AlllianceEnd Discrimination of European Minorities - Sign the Minority Safepack Initiative
  7. Centre Maurits Coppieters“Diversity Shouldn’t Be Only a Slogan” Lorant Vincze (Fuen) Warns European Commission
  8. Dialogue PlatformWhat Can Christians Learn from a Global Islamic Movement?
  9. European Jewish CongressEJC President Warns Europe as Holocaust Memory Fades
  10. European Free AlllianceNo Justice From the Spanish Supreme Court Ruling
  11. Nordic Council of MinistersNordic Solutions for Sustainable Cities: New Grants Awarded for Branding Projects
  12. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%