- Social Democrat lawmakers said to discuss bank’s finances
- Schaeuble’s ‘no concerns’ upended by turmoil in Germany, Italy
Deutsche Bank AG’s finances, weakened by low profitability and mounting legal costs, are raising concern among German politicians after the U.S. sought $14 billion to settle claims related to the sale of mortgage-backed securities.
At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Participants discussed the U.S. fine and the financial reserves at Deutsche Bank’s disposal if it had to cover the full amount, according to the people, who asked not to be identified because the meeting on Tuesday was private.
While the participants -- members of the junior party in Chancellor Angela Merkel’s government -- didn’t reach any conclusions on the likely outcome, the discussion signals that the risks have the attention of Germany’s political establishment. The German Finance Ministry last week called on the U.S. to ensure a “fair outcome” for Deutsche Bank, citing cases against other banks where the government settled for reduced fines. A spokesman for Deutsche Bank declined to comment.
Pressure on Germany’s biggest lender has increased since German Finance Minister Wolfgang Schaeuble told Bloomberg Television on Feb. 9 that he has “no concerns about Deutsche Bank.”
Deutsche Bank was already ranked among the worst-capitalized lenders in European stress tests before U.S. authorities demanded $14 billion during initial talks to settle a probe into how it handled mortgage securities during the 2008 financial crisis. The announcement led the bank’s riskiest bonds to plunge.
“It would certainly help Deutsche Bank in their negotiations to get some political involvement,” said Dieter Hein, an analyst who follows German and Swiss financial firms at Fairesearch-Alphavalue in Kronberg near Frankfurt. “BNP Paribas for example was also well advised to get some political help with litigation in the past.”
Italy’s banks have added to concern about the stability of European lenders. Banca Monte dei Paschi di Siena SpA, the third-biggest Italian bank, is turning to private investors to strengthen its balance sheet after the nation’s longest recession since World War II left companies and households struggling to repay debt. Prime Minister Matteo Renzi’s government has backed a series of measures, including the creation of a 4 billion-euro ($4.5 billion) bank rescue fund.
Since February, Deutsche Bank’s shares have dropped to record lows amid investor concern that the lender is running out of options to boost capital. It’s struggling to sell Postbank, its German retail unit, and the disposal of its British insurance business has been drawn out by a regulatory inquiry. At $14 billion, the U.S. claim would cost the bank more than twice the 5.5 billion euros it’s set aside for litigation. The bank has said it doesn’t intend to pay anywhere near that amount.
Deutsche Bank declined 2 percent to 11.40 euros at 1:44 p.m. in Frankfurt. The bank has lost 48 percent of its market value this year, giving it the lowest price-to-book value of the top 10 global investment banks. The discount indicates that investors consider the bank worth less than its assets.
Merkel’s government is maintaining a public silence on Deutsche Bank’s woes. For all the turmoil surrounding the bank, the topic didn’t come up at a 90-minute closed session of the German parliament’s Finance Committee with Schaeuble on Tuesday, participants said. The Finance Ministry in Berlin didn’t respond to phone calls seeking comment.
At their meeting on the sidelines, the Social Democratic lawmakers also expressed annoyance about the U.S. announcement, which they viewed as premature, according to the people familiar with the discussion. The Financial Stability Committee, a group of German finance officials and regulators, briefly discussed Deutsche Bank at a regular meeting on Sept. 16 and concluded that the fine demanded by the U.S. government would probably be lowered, Handelsblatt newspaper reported.