Deutsche Bank AG shunned the three-year loans the European Central Bank offered to banks in December on concern taking the funds could damage its reputation with customers, said Chief Executive Officer Josef Ackermann.
“The fact that we have never taken any money from the government has made us from a reputational point of view so attractive to so many clients in the world that we would be very reluctant to give that up,” Ackermann, 63, said on a conference call yesterday.
The ECB awarded 489 billion euros ($643 billion) in 1,134-day loans on Dec. 21 to keep credit flowing to the economy as Europe’s debt crisis made institutions wary of each other and drove up borrowing costs. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark interest rate -- currently 1 percent -- over the period of the loans starting the following day.
“I kind of agree with Ackermann’s stance,” said Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods. “The idea that central bank money could be taken and used to generate profits rather than to reduce risk is politically contentious. It’s best to avoid it if you don’t need it.”
Deutsche Bank’s decision to avoid the loans follows the disclosure of its borrowings from the U.S. Federal Reserve’s emergency-loan program during the height of the credit crunch in 2008. Fed Chairman Ben S. Bernanke’s unprecedented effort to bolster the economy included lending banks and other companies as much as $1.2 trillion of public money.
‘Learned Our Lesson’
Deutsche Bank tapped the Fed’s program for as much as $66 billion in November 2008, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup Inc. took $99.5 billion.
“We learned our lesson during the Fed activity, where we were encouraged to borrow money from the Fed on a confidential level and later on the list was disclosed, and we heard that we had to accept help from the government,” Ackermann said. “We just don’t want to do that, and that’s why we have not participated in the first” ECB tender.
Deutsche Bank said in December that it wouldn’t cut back on lending as it raises capital to meet European regulatory requirements designed to bolster confidence in the industry.
Taking the loans would be advantageous from a “pure financial standpoint,” Deutsche Bank Chief Financial Officer Stefan Krause said on the conference call. “In terms of the bank’s liquidity and its access to the market, we really wouldn’t need these programs.”
“We will always consider and counterbalance the financial decision, which obviously at some of the costs that these programs are run is quite substantial for the bank, versus what you could call the reputational issue,” Krause said.
Yields on government bonds in Italy and Spain have fallen since the ECB’s tender, and French President Nicolas Sarkozy has suggested banks could use the low-cost loans to buy more government debt.
“I’m normally not a friend of carry trades, and I don’t think that we would borrow money to buy sovereign risks even if there is an attractive spread,” Ackermann told analysts.