There are some words that make such an unlikely pairing that we find it hard to put them together. Italy and efficiency, for example. Or Bake Off and Channel 4. And ‘Germany’ and ‘banking crisis’ is another one. Our image of German banks, and theGerman economy, as completely rock solid is so strong that it takes a lot to persuade us they might be in trouble.
And yet it has become increasingly hard to ignore the slow-motion car crash that is Deutsche Bank, or to avoid the conclusion that something very nasty is developing at what was once seen as Europe’s strongest financial institution. Its shares have been in free-fall for a year, touching a new low of 10.7 euros on Monday, down from 27 euros a year ago. Over the weekend, the German Chancellor Angela Merkel waded into the mess, briefing that there could be no government bail-out of the bank.
But hold on. Surely that is an extra-ordinary decision? If the German government does not stand behind the bank, then inevitably all its counter-parties – the other banks and institutions it deals with – are going to start feeling very nervous about trading with it. As we know from 2008, once confidence starts to evaporate, a bank is in big, big trouble. In fact, if Deutsche does go down, it is looking increasingly likely that it will take Merkel with it – and quite possibly the euro as well.
Deutsche Bank has been wobbly for a year now. Back in July, it announced a slump in profits and revenues. Back in February, the Bank’s co-CEO John Cryan put out a statement re-assuring staff and investors that the institution was ‘rock solid’ amid an earlier slide in the share price. Anyone whose memory stretches back a whole eight years will know that is the kind of thing bank CEOs say about three minutes before the whole thing goes pop.
Ever since then, the news has gone from bad to worse. Deutsche has struggled to cuts costs and restore profitability, legal challenges have mounted, and then earlier this month the US Justice Department hit the bank with a $14 billion fine over sales of mortgage securities. In its pomp, Deutsche could have written out a cheque with a nonchalant shrug. Right now, no one is sure where it can get the money from.
Read all: http://www.telegraph.co.uk/business/2016/09/26/the-deutsche-bank-crisis-could-take-angela-merkel-down–and-the/