Daily Management Review

Analysts Warn European Banking System could be Shaken by Deutsche Bank’s Failure


12/21/2016




Analysts Warn European Banking System could be Shaken by Deutsche Bank’s Failure
Deutsche Bank has still got mountains to climb, a senior director at Blackrock Investment Institute was quoted in the media saying, even while Germany's biggest bank has made great strides to rebuild its credibility.
 
"If Deutsche Bank doesn't make it, forget European banks as a whole,"Blackrock's Ewen Cameron Watt said on Tuesday.
 
"I think if you look at Deutsche Bank, what John Cryan (CEO, Deutsche Bank) is doing is trying to lead a very long march back to a sustainable model. They have got through a lot of harder stuff but there are still many mountains ahead."
 
For the mis-selling of residential mortgage-backed securities (RMBS) in the run-up to the financial crisis of 2008, the German lender is currently facing a fine of $14 billion from the U.S. Department of Justice (DOJ).
 
A settlement between the bank and the DOJ has been dragging on even while the bank's stock has taken a hammering– Deutsche Bank shares are down 21 percent since the start of the year.
 
However according to Reuters, citing a source who was quoted as saying, "there is a good chance the case will be off the table before Christmas," Deutsche Bank could agree on a deal with the DOJ and there may be an announcement as early as this week.
 
It has been a tough time for investors and analysts across the world especially on this issue and they have been waiting for months for this uncertainty to end. Deutsche Bank was looking at a settlement with the DOJ of between $4 billion and $5 billion, German markets news publication Der Platow Brief reported in October. The bank was considering scrapping bonuses and raising fresh capital but it did not cite sources, the newsletter also said.
 
But shares of Deutsche Bank have been on a roller coaster ride on speculation about the settlement figure while markets wait for an agreement to be reached.
 
"The length of negotiations suggests that Deutsche Bank must be struggling to reduce any penalty to an amount that would not jeopardize its solvency position," Bronka Rzepkowski, lead global strategist at Oxford Economics, earlier had told the media.
 
Massive fines, weak earnings and a low-interest rate environment are the primary factors that have resulted in European banks struggling to make profits. The foundations of the banking system continue to remain shaky even while governments and central banks around the world are ready to inject more capital if needed.
 
"If the bank can remain solvent and the bail-in is not too severe then it is a bit like someone having a heart attack and the defibrillator is put on them and they recover,"Blackrock's Watt said.
 
"They are not well but the proportion between the moment when things are applied to them and their recovery is a big change for the individual."
 
(Source:www.cnbc.com) 






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