Merkel gives no sign of help for Deutsche Bank

Jamaica Gleaner - - BUSINESS - – AP

In this June 9, 2015 file photo, the head­quar­ters of Deutsche Bank is pho­tographed in Frank­furt, Ger­many.

DEUTSCHE Bank shares are down fur­ther after Ger­man Chan­cel­lor An­gela Merkel gave no in­di­ca­tion that her govern­ment might help the group with a United States de­mand for a US$14 bil­lion le­gal set­tle­ment.

Merkel told re­porters in Ber­lin on Tues­day that “we nat­u­rally hope, even if there are tem­po­rary dif­fi­cul­ties, that things will de­velop pos­i­tively”.

But she re­fused to say if she would con­sider step­ping in over the US govern­ment’s de­mand for a set­tle­ment in its in­ves­ti­ga­tion of the bank’s sales of mort­gage-backed se­cu­ri­ties.

Deutsche Bank shares fell an­other 2.3 per cent to €10.31 and are off 55 per cent for the year as the bank strug­gles with weak prof­its and le­gal con­cerns like the US in­ves­ti­ga­tion. In­vestors took huge losses on mort­gage-backed se­cu­ri­ties in 2007-2008 when they turned out to be riskier than thought, help­ing kick off a global fi­nan­cial cri­sis.

Deutsche Bank says it has not asked for help with the US au­thor­i­ties. It says it ex­pects to pay less than US$14 bil­lion after ne­go­ti­a­tions. And it says it is not seek­ing fi­nan­cial as­sis­tance from the govern­ment.

NEW EU RULES

In any case, a govern­ment bailout could run into new EU rules aimed at pro­tect­ing tax­pay­ers from trou­bled banks and forc­ing share­hold­ers and bond­hold­ers to take losses be­fore tax­pay­ers pay. And 2017 is an elec­tion year in Ger­many.

That has left in­vestors won­der­ing if the bank may have to raise more cap­i­tal from in­vestors, some­thing that can di­lute ex­ist­ing share­hold­ers’ stakes. The bank says that is not on the agenda.

Euro­pean banks have raised con­cerns over their low prof­its and, par­tic­u­larly in Italy, large piles of loans that are not be­ing paid back due to a less than ro­bust eco­nomic re­cov­ery. Bank woes af­fect the en­tire econ­omy be­cause banks are the main place Euro­pean com­pa­nies go for credit, not fi­nan­cial mar­kets as in the United States. And trou­bled banks lend less.

Banks have seen their prof­its eroded by low in­ter­est rates, which squeeze the mar­gins be­tween what they lend at and what they bor­row at. The Euro­pean Cen­tral Bank charges banks 0.4 per cent in­ter­est on money they leave at the cen­tral bank overnight. Nor­mally, it would pay banks in­ter­est on those ex­cess funds.

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