German business leaders have thrown their weight behind Deutsche Bank after a week of market turmoil in which shares in the country’s biggest bank were dragged to 30-year lows on fears it will be crippled by a $14bn (£10.5bn) penalty from the US authorities.
Amid concern the plight of Deutsche could wreak havoc across the globe, investors and policymakers will focus on any attempts by the bank’s chief executive, John Cryan, to agree a settlement over the decade-old mis-selling scandal when he is in Washington this week.
Cryan, a Briton who has been running Deutsche for almost 15 months, is expected to be in Washington to join other top bankers and policymakers at the annual meeting of the International Monetary Fund (IMF). His presence is sparking speculation that a deal with the Department of Justice will be clinched soon – although executives from Deutsche travel to the high-level meeting every year.
Over the weekend, business leaders spoke to German newspapers to back Cryan’s efforts to turn around Deutsche, which is a linchpin of the national economy. It is about half the size of the German economy at approximately €1.8tn, but because of its pummelling on the stock market it is valued by investors at barely €16bn. The IMF has described it as the world’s most systemically important bank.
However, the German economy minister, Sigmar Gabriel, lashed out at Deutsche Bank’s handling of its troubles, saying “irresponsible” managers had put thousands of jobs at risk.
“The scenario is that thousands of people will lose their jobs. They now have to bear the responsibility for the madness carried out by irresponsible managers,” said Gabriel.
The bank’s shares rallied sharply late on Friday after a report by AFP news agency – on which neither Deutsche nor the DoJ would comment – that the settlement for the residential mortgage-backed securities scandal would be a more manageable $5.4bn.
Ever since the $14bn figure was revealed last month Deutsche has been a concern to investors but the slide in the shares escalated last week after reports – strenuously denied – that the bank had asked the German chancellor, Angela Merkel, for assistance.
Last week Cryan wrote to the bank’s 100,000 staff – at least 7,000 of whom are based in the UK – to attack “forces in the market” trying to destabilise the bank, after Bloomberg reported 10 hedge funds were reducing their business dealing with the bank. German markets are closed on Monday.
On Sunday Jürgen Hambrecht, chairman of chemical company BASF told Frankfurter Allgemeine Sonntagszietung (FASZ): “The German industry needs a German bank that accompanies us out into the world.”
“Deutsche Bank has a great tradition, a solid base and, building on that, also a good future. I’m convinced of that,” Dieter Zetsche, the chief executive of carmaker Daimler said.
Peter Ramsauer, chairman of the German parliament’s economics committee, also talked about the “economic warlike traits” of the US approach.
The US presidential elections next month are being regarded as a potential deadline for reaching an agreement with the DoJ, which has already settled with a number of US banks, including Goldman Sachs.
The Financial Times reported last week that Credit Suisse and Barclays could also be part of a settlement. Bailed-out Royal Bank of Scotland has warned that it too may need to reach a settlement with the DoJ, which some analysts have calculated could cost £9bn. As recently as last week, Ross McEwan, the chief executive of RBS, said settlement talks with the DoJ had not begun, although the 73% taxpayer-owned bank did pay £846m to the National Credit Union Administration (NCUA) over the scandal.
Even once the bond mis-selling settlement is reached, Deutsche Bank faces an investigation into its activities in Russia, while over the weekend some former and current staff were charged in Milan in connection with Italy’s Banca Monte dei Paschi di Siena SpA for colluding to falsify the accounts of Italy’s third-biggest bank and manipulate the market.
The situation of Italy’s banks has also been a focus for Germany’s media as it plays down the need for Merkel to bail out Deutsche. “Of course Chancellor Merkel doesn’t want to give Deutsche Bank any state aid. She cannot afford it from the point of view of foreign policy because Berlin is taking a hard line in the Italian bank rescue,” Reuters reported the Frankfurter Allgemeine as saying.
Germany’s head banking regulator, Felix Hufeld of BaFin, has urged citizens not to panic about the situation.
“I warn people not to let themselves be drawn into a kind of downward spiral of negative perception. Not every nervous market reaction is backed by objective facts,” he told FASZ, without directly naming Deutsche itself.
