Is Deutsche Bank the next Lehman Brothers?
ANSHU Jain said nothing. Honouring a long-standing commitment to appear on a panel at a Bloomberg conference in London this week, the man who co-led Deutsche Bank for three years until July last year was careful not to mention the elephant in the room.
He was happy to talk about asset valuations, and the impact on deposit-taking institutions. And only too pleased to wax lyrical on low interest rates causing serious issues for pensions. But discuss the ails of his former employer he did not.
Whether he was remiss or acceding to Jain’s request, the questioner chose to steer clear of a subject on which the man who spent 20 years of his career rising up the corporate ladder of Germany’s largest bank would surely have had lots to say. For the question of whether Deutsche Bank can survive without a bail-out by the German government is the only topic most other European bankers want to talk about.
Whether the mooted $14-billion (about R196-billion) fine from American regulators for mis-selling US mortgages will bring the German lender to its knees is, unsurprisingly, a hot topic right now. But even those who remain closer to the current predicaments than Jain aren’t talking sense.
On Monday, Deutsche’s chief public relations Svengali, Jörg Eigendorf, took the unusual step of making a TV appearance in which he denied that the bank’s boss, John Cryan, had asked German Chancellor Angela Merkel for help in its negotiations with US regulators. That didn’t stop the bank’s shares slumping to a 24year low that night.
Cryan himself used an interview with Germany’s Bild a day later to go even further. The bank is “comfortably equipped with free liquidity”, the Britishborn boss asserted. Requesting help from Merkel would be “out of the question for us”.
But Cryan is simply prolonging the inevitable. After all, it’s not as if we haven’t been here before. In the long death spiral that was the collapse of Lehman Brothers, I spent hours listening to the bank’s executives and communications folk denying they had a problem.
In March 2008, Lehman’s chief financial officer, Erin Callan, trying to stem a run on the bank’s shares, which had fallen 46% a day earlier, said the bank had “the leadership, the experience, the capital strength and certainly the liquidity to ride out this period”.
Within three months, Callan issued a statement denying talk that Lehman had turned to the Federal Reserve for cash. But later that month, she admitted the quarter just ended had been “extremely challenging” as she unveiled the bank’s first loss since going public 14 years earlier and a $6-billion discounted capital raise, to add to the $4-billion raised in April.
As the months dragged on, Dick Fuld, Lehman’s chief, dispensed with the services of Callan and Joe Gregory, his right-hand man, turning instead to Bart McDade. McDade had fundraising ideas. But still the denials came. On September 10, five days before Lehman collapsed, Ian Lowitt, Callan’s replacement, told analysts on the bank’s quarterly earnings conference call: “I think that . . . our capital position at the moment is strong.”
If there is a lesson from what happened in 2008, it is that statements around recapitalisation and a lack of liquidity should never be believed.
Not only does it not make any
The words of its executives belie its balance sheet
sense for a bank to admit that it is in talks with its government to bail it out, it is also an admission of failure, and, as such, not going to happen until it happens. After all, the primary job of a bank’s CEO is to keep it afloat. So a government intervention is always going to be the lender of last resort.
In this case, there are other variables to contend with, not least the question of potential state aid from Merkel and how that would play out with her EU partners, many of whom have suffered from harsh penalties as a result of bail-outs.
It may be that Deutsche can limp through the crisis, but this is a deeply troubled bank: the words of its executives belie its balance sheet. — © The Daily Telegraph, London