Deutsche Bank’s announcement that it is short €29 billion has Germans fretting. If the country’s biggest bank is in trouble, what does that mean for the others? Commentators think it could be bad news.
The bad news from Germany’s banking sector just keeps on coming. First it was a couple of regional banks that ran into cash troubles as a result of the subprime crisis in the United States (more…).
Then, on Thursday, banking giant Deutsche Bank admitted that it too had issues stemming from the waves washing over from the American housing market. CEO Josef Ackermann told German television that his bank had “made mistakes” (more…) and that some €29 billion in credit agreements would have to be reassessed.
That may sound like a ton of money, but for an institution the size of Deutsche Bank, it hardly counts as a calamity: Ackermann said the main consequence will be putting on ice 4,000 new hires which had been planned for this year.
Still, the symbolic value cannot be ignored: If Deutsche Bank is suffering from the current situation on the capital markets, what problems must its smaller brothers and sisters (more…) be facing? Lloyd Blankfein, head of Goldman Sachs, thinks there is more to come. “I think it is very possible that more corrections are on their way,” he says.
German commentators are concerned that he might be right, and use their allotted space on the editorial pages to fret about it on Friday.
The left-leaning Berliner Zeitung fears that banks are no longer really in control of the global financial system:
“It seems as if there is only one way out of the dilemma: transparency…. Only if all the parties involved openly reveal their commitments and their exposures to loss can the crisis in confidence be overcome …. That will be painful for many, but it cannot be avoided, because the banks’ misguided speculation cannot be undone.”
“In this spirit, Deutsche Bank has now published some figures and admitted its mistakes. The burden of these mistakes is borne by borrowers, who now face increased interest rates, and also by the people who will no longer be hired this year by Deutsche Bank. But if the crisis continues to smolder and pushes the economy into a recession, then many more people will pay the price of the money jugglers’ mistakes.”
Financial daily Handelsblatt looks beyond the Deutsche Bank announcement to glean some lessons from the finance crunch in its entirety:
“The short-term lesson to be learned from the credit crisis, which is far from over, is crystal clear: Do what you want — the taxpayers will bail you out. In the end it’s not just the cost of direct bailouts that will have to be borne by the taxpayers. If central banks across the world now cut interest rates in order to prop up the banking market, then it will be the citizens who end up paying through higher inflation rates.”
“The self-regulatory mechanisms in the financial sector have failed and even rating agencies lacked the imagination to foresee this crisis. Now those states with stricter regulations will have to intervene. But this is not about introducing more bureaucracy. Quite the opposite: The regulators should look more closely and intervene where they see grubby practices or extremely high risks, even if there are no formal regulations. This requires strong and competent officials.”
“The experience with the subprime crisis shows that there is no point relying on responsible customers. The banks should be cooperating to improve the regulatory system. In the end it is not in their interests to end up relying too heavily on the state.”
The center-right daily from Germany’s banking capital Frankfurt, the Frankfurter Allgemeine Zeitung, focuses in its commentary on Deutsche Bank CEO Josef Ackermann and the interview he gave:
“Ackermann issued a clear profit warning, without mentioning any concrete numbers. Apparently, his bank has been affected by the current turbulence to a greater degree than it had hoped; just how great won’t be known for another few weeks. That Deutsche Bank has now put a stop to plans to drastically increase staff fits into the picture of a company that doesn’t really know where it stands. It is, however, astounding that Ackermann has gone public with this uncertainty.”
The Financial Times Deutschland thinks that Ackermann’s announcement might be the sign of more bad news to come:
“A couple of self-critical comments from Deutsche Bank boss Josef Ackermann in a talk show resulted in a severe slide for his company’s stock of around 3 percent. ‘Ackermann shocks the stock market,’ the headlines read. But if you take a more sober look at things, he hardly said anything new. It has been known for weeks that, in the face of the global finance crisis, Deutsche Bank had been forced to take a new look at some €30 billion worth of private equity deals.”
“The new part, though, is the tone coming from the biggest bank in the country. As recently as the beginning of this month, Ackermann spoke rather smugly about the problems being faced by smaller institutions, which apparently had a lack of expertise when it came to certain deals. Now, in a television studio facing an audience of millions, Ackermann presented a rather subdued face and spoke of mistakes that his own company made in the face of the financial crisis.”
“The change in tone could be an indication that Deutsche Bank got cold feet when it took a second look through its books. It is this worrying suspicion that resulted in the violent reaction on the market.” SPEIGEL ONLINE