BUSI­NESS Deutsche Bank wob­bles scare mar­ket

Stock tum­bles amid un­cer­tainty re­gard­ing mas­sive fine levied by US

Weekend Argus (Saturday Edition) - - FRONT PAGE - FRANK JORDANS and PAN PYLAS

BER­LIN: Wor­ries over the fi­nan­cial sta­bil­ity of Deutsche Bank re­turned to the fore, send­ing shares in Ger­many’s big­gest bank to a record low.

Re­ports that hedge funds are mov­ing their busi­ness out of the bank were the cat­a­lyst to the lat­est sell-off.

In fren­zied early trad­ing, the bank’s stock fell another 8 per­cent to be­low € 10 a share for the first time, be­fore re­cov­er­ing some­what to trade 6 per­cent lower at € 10.20.

Deutsche Bank has been a grow­ing con­cern for in­vestors in the past two weeks, since au­thor­i­ties in the US said they are seek­ing $ 14 bil­lion (R193bn) from the bank to set­tle le­gal claims over its sales of mort­gage se­cu­ri­ties in the run-up to the global fi­nan­cial cri­sis in 2008.

With the Ger­man government giv­ing no sign it would be pre­pared to of­fer a bailout, and the bank heav­ily ex­posed to risky in­vest­ments, no­tably in the de­riv­a­tives mar­kets, in­vestors have grown in­creas­ingly jit­tery.

That worry was re­lieved only tem­po­rar­ily by Deutsche Bank’s move this week to sell an in­surance sub­sidiary for just over € 1bn in an ef­fort to shore up its cap­i­tal buf­fers.

The lat­est un­ease over Deutsche Bank stemmed from a re­port by Bloomberg that about 10 hedge funds had taken mea­sure to re­duce their ex­po­sure to the bank.

“Un­der any nor­mal sit­u­a­tion this prob­a­bly wouldn’t be wor­thy of men­tion, but in bank­ing per­cep­tion is every­thing, and in times of stress in­vestors tend to shoot first and ask ques­tions later and when con­fi­dence starts to leak away the en­su­ing drip can very quickly turn into a water­fall,” said Michael Hew­son, chief mar­ket an­a­lyst at CMC Mar­kets.

The wider worry, which has sent stock mar­kets across Europe sharply lower yes­ter­day is that Deutsche Bank may prove to be a “Lehman mo­ment” for the Euro­pean bank­ing sys­tem.

In Septem­ber 2008, the US government made clear it was not go­ing to bail out in­vest­ment bank Lehman Broth­ers when it was in huge dif­fi­culty. Be­cause Lehman was con­nected to many other banks, the de­ci­sion to let it fall trig­gered a col­lapse of con­fi­dence in the global fi­nan­cial sys­tem that pushed the world econ­omy into its deep­est re­ces­sion since World War II.

“Ger­man chan­cel­lor An­gela Merkel says there will be no state bailout, but this might be a case of ‘fa­mous last words’, as the his­tory of bank­ing crises of­ten shows that ma­jor banks can­not be al­lowed to fail for fear of sys­temic risk af­fect­ing the fi­nan­cial sys­tem and neg­a­tively im­pact­ing the real econ­omy,” said Neil MacKin­non, global macro strate­gist at VTB Cap­i­tal.

That’s why many ex­perts ex­pect some sort of deal to help the bank, should it be needed. That may see bond­hold­ers take a hit or a pos­si­ble merger of the bank with Com­merzbank, which has its own fi­nan­cial prob­lems.

The Ger­man government is also ex­pected to pres­sure US au­thor­i­ties to re­duce the fine, as it would be in no one’s in­ter­est for one of the world’s most sys­tem­i­cally im­por­tant banks to go un­der.

One ma­jor dif­fer­ence to 2008 is that the Euro­pean Cen­tral Bank has a range of tools to shore up liq­uid­ity in banks un­der its ju­ris­dic­tion, the 19 coun­tries that use the euro.

As a re­sult, Deutsche Bank should be able to avoid a fund­ing squeeze and a po­ten­tial run on de­posits.

MacKin­non says that’s not enough, though, and that the Euro­pean bank­ing sec­tor is likely to re­main un­der stress given the ab­sence of much­needed ef­forts to re­struc­ture and raise money. – ANA-AP

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