Saturday 24 February 2018

Germany is forced to deny bank rescue plan

Deutsche Bank shares have lost around half their value this year
Deutsche Bank shares have lost around half their value this year

Arno Schuetze|

The German government denied it was working on a rescue of Deutsche Bank yesterday as the country's biggest lender boosted its balance sheet by selling its British insurance business.

Deutsche is facing a $14bn (€12.4bn) fine from the US Department of Justice and concerns over its funding pushed its shares to a record low on Tuesday and heightened concerns about the health of the financial sector in Europe's largest economy.

Germany's finance ministry dismissed a newspaper report that a rescue plan was being prepared in case Deutsche was unable to raise capital to pay for costly litigation.

'Die Zeit' newspaper had reported that the government and financial authorities were working on possible steps to enable Deutsche to sell assets to other lenders at prices that would ease the strain on the lender.

The German government would even offer to take a direct stake of 25pc in an extreme emergency, the paper said without saying where it got its information.

"This report is wrong. The German government is not preparing any rescue plan, there is no reason to speculate on such plans," the finance ministry said in a statement.

Two sources close to the matter also said that German financial regulator Bafin was not working on an emergency plan.

Deutsche Bank shares, which have lost around half their value this year, were up 1.9pc by 11.45am yesterday. A Deutsche Bank spokesman referred to an interview chief executive John Cryan gave German daily 'Bild' yesterday and denied the report.

"At no point did I ask the Chancellor for support. Neither did I suggest anything like that," the bank chief told 'Bild' in response to a report that said he had asked Angela Merkel for her backing with the US demand to settle claims it mis-sold mortgage-backed securities.

Squeezed by the European Central Bank's low interest rates, German banks have been seeking ways to boost revenue by passing on costs to corporate customers and increasing fees for retail depositors, but profit margins remain thin in one of Europe's most competitive banking markets.

Banks such as Deutsche are also counting the cost of litigation dating back to their expansion before the financial crisis in 2007-2009.

Deutsche Bank said it had sold its British insurance business Abbey Life to Phoenix in a €1bn deal. Its already sold other non-core units such as its stake in Chinese lender Huaxia.

Since the financial crisis, banks are required to have plans showing how they could recover from a major market shock. Regulators also draw up plans for each lender on how it would be smoothly closed down in the event of impending failure.

Bank of England deputy governor Minouche Shafik dismissed comparisons with the collapse of Lehman Brothers at the height of the financial crisis in 2008. (Reuters)

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