The German banking giant Deutsche Bank has faced a turbulent time since the start of the year. The bank, which is one of Germany’s largest, escaped the financial crisis of 2008 relatively unscathed but questions over its financial position have been raised. The share price has declined by 30 per cent in the first 6 weeks of this year, with the share price reaching a 30 year low last week.
Moreover, the bank has been embroiled in several scandals and its profitability has declined. Deutsche Bank has had to pay a large number of fines last year including one for fixing the Libor (London Inter-Bank Offered Rate) which totalled a record-breaking £1.7 billion. The bank paid €6.8 billion in fines last year with analysts Morgan Stanley predicting that Deutsche Bank will have a further €3.9 billion in fines and litigation costs to pay this year alone. Last week, the bank announced its first full year loss since the financial crisis, leading to further steep falls in the bank’s share price.
This has left investors fighting to sell off shares in Deutsche Bank despite the English CEO John Cryan, a City veteran who was made the boss last year to restructure the bank, declaring that “Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position.” However, with analysts comparing the situation at Deutsche Bank to that of Barclay’s, Mr Cryan has an uphill battle to reassure the market that Deutsche Bank is financially stable.
Unfortunately for Mr Cryan, investors remain skeptical with the share price continuing to fall despite plans to make 15,000 staff redundant and restructuring the investment and retail arms of Deutsche Bank. Last Wednesday, the bank enacted an emergency bond buyback to try and shore up the share price but rumours that the retail arm PostBank needs to be devalued by a third of its value hasn’t helped the situation.
This is a far cry from eight years ago when Deutsche Bank was considered a safe haven for investors hoping to protect themselves from the crash. Indeed, despite being Germany’s largest bank, unlike many of its competitors in Europe, the bank did not receive a bailout. So far, Angela Merkel’s government has remained quiet and unconcerned, with the finance minister saying he is not worried. However, the German media have been less mute.
The Frankfurter Allgemeine Zeitung ran a front page editorial which asked “How solid is a bank that has shed a third of its shareholder value in a month, and half of it over the course of a year?” Indeed, the same newspaper pointed out that it is now the customers of Deutsche Bank who need to ask questions.
However, given the size and importance of Deutsche Bank, it needs to stabilise the situation. Having lost nearly 30 per cent of its value, for the sake of the German and European financial system the bank needs to resolve this rapidly.