Saturday 19 October 2019

Chinese and ECB calm nerves over Deutsche Bank health

New CEO Christian Sewing is returning the bank to its roots
New CEO Christian Sewing is returning the bank to its roots

Francesco Canepa and Andreas Framke

Deutsche Bank, the European Central Bank (ECB) and the German bank's biggest investor all sought to reassure shareholders and staff of its financial strength yesterday after S&P cut its rating and questioned its plan to return to profitability.

Shares in Deutsche Bank closed at an all-time low on Thursday as past misadventures in high-risk investment banking haunted new CEO Christian Sewing's attempt to refocus on its more staid corporate banking roots.

In an unusual move, a source familiar with the thinking of the ECB, which regulates Deutsche Bank, and its top shareholder, HNA Group of China, separately said they backed management's strategy of retrenchment.

Deutsche Bank shares were up 3.7pc by midday yesterday on the supportive tone. Deutsche Bank will face another challenge this month when the US Federal Reserve publishes for the first time the results of a "stress test" on its US operations.

Standard & Poor's downgraded the bank's credit rating to BBB+ from A- yesterday.

The downgrade came after reports earlier in the week that the Fed last year designated one of Deutsche Bank's US businesses as "troubled", something a person with knowledge of the matter confirmed to Reuters yesterday.

The Fed's stress test results, expected later this month, are the next big public barometer of Deutsche Bank's financial strength. The regulator has been examining how banks would cope with any new crisis.

The apparent discord between Deutsche Bank's regulators at the ECB and those in the US is unusual.

So too is contradicting ratings agencies like S&P, which the ECB relies on when deciding what collateral to accept from banks and even which bonds to buy as part of its stimulus programme.

The ECB was previously criticised by politicians after it emerged that regulators in Frankfurt had granted Deutsche Bank special treatment in its 2016 stress test, resulting in a boost to its capital level. (Reuters)

Irish Independent

Also in Business