One of Europe’s most experienced bankers said the beleaguered sector was ‘not really investment-friendly’, in remarks that underline the difficulties the continent’s big banks could face if they had to raise new funds .
Tidjane Thiam, chief executive of Credit Suisse, issued a warning of the problems facing the sector as the focus remained on Deutsche Bank and its battle to reduce a $14bn (£10.5bn) fine ) from the US authorities for abusive sale of mortgage bonds.
On Wednesday, the German government rushed to deny a report that it was preparing a bailout under which it could take a 25% stake in Deutsche Bank, the country’s largest bank. With assets half the size of the German economy, it is seen as the bank that poses the greatest risk to global financial stability.
Shares of Deutsche Bank plunged to nearly 30-year lows this week amid reports – which were later denied – that it had sought intervention from the German government to help reduce the sanction of the US Department of Justice (DoJ). Their decline was halted on Wednesday, when the bank sold a British insurance company for 1 billion euros; they closed up 2% at €10.76.
Thiam told a Bloomberg conference that European banks were in a “very fragile situation” and said there were doubts that European banks still had a viable business model. Concerns about the lowest interest rates and the amount of capital banks would have to hold meant that returns for investors were too low, making banks “not really investable”.
Credit Suisse is among a number of other banks, including Barclays, that are facing a DoJ sanction.
Fears that Deutsche Bank may have to appeal to its investors for cash are among the reasons its shares plunged and raised fears it could present a Lehman Brothers-style moment for the markets. However, top bankers and policymakers have all downplayed the prospects of a repeat of Lehman’s collapse in 2008.
John Cryan, the Briton who has run Deutsche Bank for 15 months, has come out to insist that he did not ask Angela Merkel, the German chancellor, to help him deal with the DoJ to try to stop the decline in the bank’s shares.
“At no time did I ask the Chancellor for help. Nor did I suggest anything like that,” he said. Such a request would be “out of the question” and he did not understand how “anyone could claim that.” The allegations were raised last week in a German magazine.
Hours after his remarks to the Bild newspaper, a Die Zeit article presented a two-step plan prepared by the Merkel government for the “worst case scenario”, in which the DoJ regulations are not reduced and the largest lender German fails to raise enough capital. .
In a report to be published on Thursday, Die Zeit says the first step would be to try to find a solution, with Deutsche Bank selling part of its business to a German or foreign company, and the state issuing guarantees for potential losses.
The second stage, which would only apply if such a private solution fails, would involve a state-backed bailout.
According to Die Zeit, the German government is “debating a 25% state takeover” of the bank. This could facilitate a merger with Commerzbank, which is 15% state-owned.
The report was denied by the German Ministry of Finance and the financial regulator. Martin Jäger, spokesman for the German Finance Ministry, said: “The German government is not preparing a rescue plan and there is no reason for such speculation.” insured, for 1 billion euros (860 million pounds sterling). This will generate a loss of 800 million euros for the German bank, but will improve its financial solidity by reducing it.
The bank also told staff it was not considering raising capital or needing state aid, although speculation about possible options for its future included an offer to a new Turkish national fund. Bloomberg reported that Yiğit Bulut, a chief adviser to Turkish President Recep Tayyip Erdoğan, suggested Germany’s biggest lender be turned into a Turkish bank.
Christine Lagarde, managing director of the International Monetary Fund, which has rated Deutsche Bank as the world’s riskiest bank, said state aid was not needed. Speaking to CNBC, Lagarde said: “I don’t see this particular institution as…at a stage where state intervention is absolutely necessary at this time. I hope the right steps will be taken internally to that the entire financial sector in Germany is sound and that the systemic players [are] reinforced. Axel Weber, chairman of UBS and former president of Germany’s Bundesbank, said fears of a repeat of the 2008 banking meltdown were unfounded. He said banks had between seven and ten times more capital than eight years ago. Bank of England Deputy Governor Minouche Shafik also played down any comparisons.
Weber told Bloomberg TV, “There is a much more stable system. In my opinion, the system is much more stable now. I think we are a long way from where the banks are now, compared to 2007 and 2008.”