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22/01/2017

Eurogroup chief says Deutsche Bank ‘must solve own problems’

Euro & Finance

Eurogroup chief says Deutsche Bank ‘must solve own problems’

Jeroen Dijsselbloem

[European Parliament]

Eurogroup chief Jeroen Dijsselbloem on Friday (30 September) warned embattled Deutsche Bank that it would have to “solve its own problems”, saying Germany’s largest lender must survive without state aid.

But the eurozone’s top financial official also lashed a $14-billion fine demanded by US authorities as “too high”, saying it amplified problems within the zone’s banking system.

Shares in Deutsche Bank plummeted on the Frankfurt stock exchange today after reports that some customers were pulling out on widening concerns over the bank’s weak financial strength.

The investors were reacting to a €12.4 billion fine demand from the US Department of Justice (DoJ) and conflicting reports in German media over whether Berlin would come to the troubled bank’s aid if necessary, which have sapped the bank’s market valuation since Monday.

Deutsche Bank plunges to historic low

Fears that Deutsche Bank will have to raise capital, in order to pay its US Justice Department fine for misselling subprime mortgages, have seen it suffer badly. Angela Merkel has ruled out state aid. EurActiv’s partner Milano Finanza reports.

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The DoJ is demanding the money for Deutsche Bank’s role in the subprime mortgage crisis — on top of around 8,000 legal cases worldwide.

“The company (Deutsche Bank) itself must set things right,” Dijsselbloem, who is also Dutch finance minister, said speaking to reporters ahead of the usual weekly Dutch cabinet meeting in The Hague.

“In Europe, we have now regularly and legally determined that a bank has to solve its own problems,” he said.

This included, if necessary “that the bill gets presented to the bank’s investors, the shareholders, the bondholders and not to the authorities”, Dijsselbloem said, speaking to the NOS public newscaster.

The Eurogroup chief, however, called the DoJ’s fine demand “too high”.

“The 14-billion (fine demand) absolutely means that the problem will now be amplified and extra measures will have to be taken to strengthen its (Deutsche Bank’s) balance,” he said.

Bloomberg reported on Thursday (28 September) that approximately 10 hedge funds which clear trades with Deutsche Bank withdrew some excess cash and derivatives holdings and moved the assets to other firms this week, citing an internal bank document.

Deutsche Bank has said that it will not have to pay the full amount demanded by the DoJ over its role in the devastating subprime mortgage crisis, pointing to US banks that negotiated much lower settlements.

But investors fear that the fine could still be large enough to wipe out the $5.5 billion in provisions the bank has set aside for legal entanglements.

Background

Eurogroup chief Jeroen Dijsselbloem on Friday (30 September) warned embattled Deutsche Bank that it would have to "solve its own problems", saying Germany's largest lender must survive without state aid.