One of Europe’s most senior bankers has said the embattled sector is “not really investable”, in remarks that underline the difficulties the continent’s big banks could face if they have to raise new funds.
Tidjane Thiam, chief executive of Credit Suisse, issued the warning about the problems the sector faces as the focus remained on Deutsche Bank and its battle to reduce a $14bn (£10.5bn) penalty from the US authorities for mis-selling mortgage bonds.
On Wednesday the German government raced to deny a report that it was preparing a bailout plan under which it might take a 25% stake in Deutsche Bank, which is the country’s biggest bank. With assets half the size of the German economy it is regarded as the bank that poses the biggest risk to global financial stability.
Shares in Deutsche Bank have plunged to near-30-year lows this week amid reports – which were then denied – that it had asked for German government intervention to help reduce the punishment from the US Department of Justice (DoJ). Their decline was arrested on Wednesday, when the bank sold a UK insurance company for €1bn; they closed 2% higher at €10.76.
Thiam told a Bloomberg conference that Europe’s banks were in a “very fragile situation” and said there was doubt that European banks still had a viable business model. Concerns about rock-bottom interest rates and how much capital banks should hold meant returns to investors were too low, making banks “not really investable”.
Credit Suisse is among a number of other banks, including Barclays, facing a penalty from the DoJ.
Fears that Deutsche Bank might have to tap its investors for cash are among the reasons its shares have plunged, and raised fears that it could present a Lehman Brothers-style moment for the markets. However, top bankers and policymakers all played down the prospects of a repeat of the collapse of Lehman in 2008.
John Cryan, the Briton who has run Deutsche Bank for 15 months, spoke out to insist he had not asked Angela Merkel, the German chancellor, for help in dealing with the DoJ in an attempt to arrest the decline in the bank’s shares.
“At no point did I ask the chancellor for support. Neither did I suggest anything like that,” he said. Such a request would be “out of the question” and he could not understand how “anyone could claim that”. The claims were raised last week in a German magazine.
Within hours of his remarks to Bild newspaper a report in Die Zeit set out a two-stage plan being prepared by Merkel’s government for the “worst case scenario”, under which the DoJ settlement is not reduced and Germany’s biggest lender fails to raise enough capital.
In an article to be published on Thursday, Die Zeit claims that the first stage would involve attempting to find a solution, with Deutsche Bank selling parts 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 were to fail, would involve a state-backed bailout.
According to Die Zeit, the German government is “debating a state takeover of as much as 25%” of the bank. This might facilitate a merger with Commerzbank, which is 15% state owned.
The reportwas denied by the German finance ministry and financial regulator. Martin Jäger, a spokesman for the German finance ministry, said: “The German government is not preparing a rescue plan and there is no reason for such speculations.”Cryan gave the interview as Deutsche Bank sold its Abbey Life insurance business, with 735,000 UK policyholders, for €1bn (£860m). This will generate an €800m loss for the German bank, but improve its financial strength by making it smaller.
The bank also told its staff that it was not planning to raise capital or in need of state aid, although speculation about possible options for its future included a bid from a new Turkish national wealth fund. Bloomberg reported that Yiğit Bulut, a chief adviser to the Turkish president, Recep Tayyip Erdoğan, had suggested Germany’s largest lender should be made into a Turkish bank.
Christine Lagarde, managing director of the International Monetary Fund which has ranked Deutsche Bank as the world’s riskiest bank, said state help was not needed. Speaking to CNBC, Lagarde said: “I don’t see that particular institution as ... at a stage where state intervention is absolutely called for at the moment. I would hope that the right measures are taken internally so that the whole financial sector in Germany is solid and that systemic players [are] strengthened.”Axel Weber, the chairman of UBS and former president of the German Bundesbank, said fears of a rerun of the 2008 banking collapse were misplaced. He said banks had between seven and 10 times more capital than eight years ago. The deputy Bank of England governor Minouche Shafik also played down any comparison.
Weber told Bloomberg TV: “There is a much more stable system. In my view the system is much more stable now. I think we are very far in how solid banks are now, from where were in 2007 and 2008.”