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Deutsche Bank chief denies asking German government for help Germany preparing Deutsche Bank bailout plan, reports claim
(about 1 hour later)
The British chief executive of Deutsche Bank has played down the need for Angela Merkel to intervene in its discussions with the US over a $14bn (£10.5bn) penalty as he pressed on with selling off assets to bolster its capital position. The German government is working on an emergency rescue plan for Deutsche Bank, according to information obtained by newspaper Die Zeit, contradicting a statement from the bank’s chief executive that state aid is “out of the question”.
As senior bankers and policymakers insisted that the problems facing Germany’s biggest bank were not comparable with Lehman Brothers, which collapsed in 2008, John Cryan told German newspaper Bild that Deutsche Bank did not expect to pay as much as the US department of justice has been demanding for the mis-selling of mortgage bonds a decade ago. Angela Merkel’s government is preparing a two-stage plan for the “worst case scenario”, whereby the US justice department imposes a $14bn penalty on the bank for mis-selling mortgage bonds a decade ago, while Germany’s biggest lender fails to raise enough capital to pay the potential fine.
Even so, there were reports in Germany that the government was working on contingency plans for Deutsche Bank, which has assets worth about half the value of the German economy and is a stalwart of the global financial system. According to a report in newspaper Die Zeit, the German government would take a 25% stake in the bank if it needed fresh capital and could not raise funds in the markets. 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-sponsored bailout.
According to Die Zeit’s research, shared with the Guardian, 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 report, which was denied by the German finance ministry and financial regulator, came hours after John Cryan, the chief executive of Deutsche Bank, told German newspaper Bild that the bank did not expect to pay as much as the US department of justice has been demanding.
Speaking at a press conference in Berlin, 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 pressed on with selling off assets to bolster its capital position, and senior bankers and policymakers insisted that the problems facing Germany’s biggest bank were not comparable with Lehman Brothers, which collapsed in 2008, a major cause of the global financial crisis.
Cryan, who has been the helm of Deutsche Bank for nearly 15 months, told Bild that, contrary to reports, he had not asked Merkel, the German chancellor, for help.Cryan, who has been the helm of Deutsche Bank for nearly 15 months, told Bild that, contrary to reports, he had not asked Merkel, the German chancellor, for help.
“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,” he told Bild. “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”.
Deutsche’s plight, which has seen its shares tumble to a near 30-year low amid speculation that, at the very least, it will need to raise billions of euros from shareholders, has raised concerns that problems at the bank could cause a global crisis similar to that triggered by the collapse of Lehman Brothers in 2008. Deutsche Bank, which has assets worth 50% of the German economy and is a key player in the global financial system, has seen its share price fall by more than 50% this year.
But Axel Weber, the chairman of UBS, said banks had between seven and 10 times more capital than eight years ago, while the deputy Bank of England governor Minouche Shafik also played down any comparison. The shares have reached a near 30-year low, but were up by 1% to €10.74 by mid-morning on Wednesday, after falling as low as €10.19 on Tuesday. The shares traded at about €100 before the financial crisis.
“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,” Weber told Bloomberg TV. 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 pointed out that banks had between seven and 10 times more capital than eight years ago.
Cryan, who is trying to cut costs at Deutsche Bank and sell off parts of the company, announced the sale of its insurance business Abbey Life for €1bn (£860m). While this will generate a €800m loss for the German bank, it will improve Deutsche Bank’s financial strength. The deputy Bank of England governor Minouche Shafik also played down any comparison.
Some analysts have suggested that he could sell the bank’s asset management business to raise funds, but Cryan said: “Deutsche Asset Management will continue to focus on its core businesses of active, passive and alternatives, while this transaction will also strengthen Deutsche Bank’s capital position. We continue to build a simpler and better Deutsche Bank.” 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.”
The bank’s shares rose to €10.78 after falling as low as €10.19 on Tuesday. The shares traded at about €100 before the financial crisis. Cryan, who is trying to cut costs at Deutsche Bank and sell off parts of the company, has sold its insurance business Abbey Life for €1bn (£860m). While this will generate a €800m loss for the German bank, it will improve Deutsche Bank’s financial strength.
Some analysts have suggested that he could sell the bank’s asset management business to raise funds. However, speaking as the Abbey Life sale was announced, Cryan said: “Deutsche Asset Management will continue to focus on its core businesses. This transaction will also strengthen Deutsche Bank’s capital position. We continue to build a simpler and better Deutsche Bank.”
A state-sponsored bailout for Deutsche Bank would be highly embarrassing for the lender. In 2008, its former chief executive Josef Ackermann said he would be “ashamed” to take money from the German government, which has been especially tough on limiting state aid for ailing banks in southern Europe.
Any bailout would also come with considerable economic risk. A rule that came into force across the EU at the start of the year stipulates that no bank can be bailed out with public money until creditors accounting for at least 8% of the lender’s liabilities have contributed towards footing the bill. Deutsche Bank’s bondholders would therefore become a high-profile test case for the bail-in regime.