By Aaron Kirchfeld and Oliver Suess – Sep 5, 2011
Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said conditions in the stock and bond markets are reminiscent of the financial crisis of late 2008.
“The ‘new normal’ is characterized by volatility and uncertainty — not only in respect to market developments, but also in consideration of the future of the financial branch,” Ackermann said today at a conference in Frankfurt organized by Euroforum. “All this reminds one of the fall of 2008, even though the European banking sector is significantly better capitalized and less dependent on short-term liquidity.”
The collapse of Lehman Brothers Holdings Inc. in September of 2008 froze credit markets and forced taxpayer-funded bailouts of banks from Washington and London to Berlin. Concern Europe’s sovereign debt crisis is worsening and global economic growth is slowing wiped about 5 trillion euros ($7 trillion) from stock values since the end of July, with banks leading the slide, Ackermann said.
The Bloomberg Europe Banks and Financial Services Index of 46 stocks dropped as much as 5.3 percent today, and tumbled 32 percent this year. Deutsche Bank fell 8 percent, the biggest decline in more than two years, by 2:05 p.m. in Frankfurt trading.
Deposits With ECB
Aid of 256 billion euros ($363 billion) for Greece, Ireland and Portugal failed to halt the spread of the debt crisis, which now threatens Spain and Italy. The extra yield investors demand to hold Italian 10-year bonds instead of benchmark German bunds climbed 28 basis points to the most since Aug. 5.
The European Central Bank said financial institutions increased overnight deposits with it to the highest in more than a year. The cost of insuring against default on European financial debt rose to record. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers soared 13 basis points to 259, according to JPMorgan Chase & Co.
Many European banks “obviously” wouldn’t be able to shoulder writedowns on sovereign debt held in their banking books based on market values, Ackermann said today. Therefore European governments agreed to financial aid measures for countries, and forcing banks to boost their capital would undermine the credibility of existing support measures, he said.
Banks face “a row of challenges” and containing costs is increasingly important when it is hard to boost revenue, Ackermann said. Deutsche Bank would consider additional cost reductions if markets don’t improve from August levels and if the outlook for the investment-banking division remains difficult in the long term, he said.
“If the developments in August continue in September and October, then it’s clear we’ll have to consider such measures,” Ackermann said. “Currently, we assume that the trend of August won’t necessarily continue” and the retail and asset management businesses are doing better than planned, he said.
Deutsche Bank, Royal Bank of Scotland Group Plc (RBS) and Societe Generale SA led declines in European bank stocks after 17 lenders were sued by the U.S. over the sale of mortgage-backed securities and on investor concern over interbank lending.
Ackermann said the German company will fight suits in the U.S., and proving there was fraud “won’t be simple.”
DZ Bank AG Chief Executive Officer Wolfgang Kirsch, speaking at the same conference, said European politicians need to agree on a solution for the sovereign debt crisis to avoid a repeat of the events of 2008. “Otherwise we will enter a very difficult market situation,” Kirsch said.
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