Deutsche Bank Mistaken for Bundesbank Saved on Funding Costs

  • Krause says investors gave biggest German bank cheap financing
  • Deutsche Bank has cut balance sheet 26% since September 2011

Deutsche Bank AG has benefited from lower funding costs in part because investors confused it with Germany’s central bank, said Stefan Krause, a member of the company’s management board.

“It’s not Deutsche Bank’s wish, but you could almost say that because of our name, a large part of the capital market thinks we’re the Bundesbank,” Krause said during a panel discussion in Dusseldorf, Germany, on Wednesday. “Global refinancing markets always offered Deutsche Bank good conditions because in the heads of the people there was always an implicit state guarantee.”

Krause was responding to a comment by fellow panel member Clemens Fuest, the president of the ZEW Center for European Economic Research, who said several studies show that banks considered too big to fail get cheaper financing. Krause, agreeing with Fuest, said Deutsche Bank also benefited from a case of mistaken identity.

Business Model

“People would often tell me that they knew Ackermann, but what was Weidmann’s role and why were there two German central banks?” Krause said on the panel, referring to former Deutsche Bank Chief Executive Officer Josef Ackermann and Bundesbank President Jens Weidmann. “You have to say that Deutsche Bank did naturally have -- and this also led to our business model -- an almost sheer unlimited refinancing ability and the ability to build up a sheer endless balance sheet.”

Ackermann, who stepped down in May 2012, helped transform the company from a lender focused on Germany to a global investment bank. Weidmann has led the Bundesbank since May 2011, and helps set euro-area monetary policy as a member of the European Central Bank’s governing council.

Deutsche Bank’s leadership never ran the company in a way that assumed it would be bailed out, Krause said during a separate speech at the conference earlier Wednesday.

“I can’t remember a single meeting in my time at Deutsche Bank in which we discussed that we actually thought that the company couldn’t go bust or that it would be rescued,” he said. “We are indeed a business and can naturally run into trouble.”

Lower Margins

Regulators want to take taxpayers off the hook for bank failures by ordering lenders to hold more capital and forcing future losses on bank bondholders. 

Deutsche Bank shrank its balance sheet by 26 percent to 1.69 trillion euros ($1.88 trillion) in June from September 2011, its filings show. It still has the least capital as a share of total assets of Europe’s 22 largest publicly traded lenders which disclose the information, according to data compiled by Bloomberg.

While benefiting from cheap refinancing, Deutsche Bank’s focus on Germany meant it earned lower profit margins and faced higher costs than its competitors, according to Krause, who spent about seven years as chief financial officer before assuming oversight of transaction banking in May. He spoke on a panel with Fuest, Peter Terium, the CEO of German utility RWE AG, and Felix Hufeld, the president of German banking regulator Bafin.

Before it's here, it's on the Bloomberg Terminal.