Allianz CEO Says Europe Banks Need Fixing Fast as Investors Balk

Allianz SE Chief Executive Officer Oliver Baete warned that problems at Europe’s banks must urgently be fixed, calling rules barring government bailouts a “strait jacket” preventing bold action to revive the region’s economy.

“There’s still a lot of loans that have not been worked out, a lot of credibility issues in the balance sheets, a lot of the problems were moved into the banking books -- and markets are not stupid,” Baete, who leads Europe’s largest insurer, said Wednesday during a panel discussion at Bloomberg’s London headquarters. “We’ve given ourselves lots of rules and regulation, and no bailout and what have you -- that’s like a strait jacket. The first step is to say we have a problem, and fix it fast. Stop the lingering.”

Baete was skeptical that tapping private investors to shore up banks’ balance sheets will succeed in stabilizing the financial system. The turnaround plan for Italy’s Banca Monte dei Paschi di Siena SpA envisions selling as much as 5 billion euros ($5.6 billion) of stock to private investors, while Deutsche Bank AG has faced calls to issue new equity.

“Who are the investors who are going to invest in a bank that is returning dramatically less than the cost of capital? Nobody will,” Baete said. “We can’t use public money any more because we’re going to lose elections.”

Regulations governing state bailouts have become controversial as bank stocks have fallen and Monte Paschi’s capital shortfall threatened to drag down the rest of the Italian financial system. Italian Prime Minister Matteo Renzi clashed with the European Commission in July over whether his proposal for a recapitalization would break the rules.

Deutsche Bank shares touched a record low this week, dragging down banks across Europe, as speculation that the lender may need a state bailout was reported in the German press. CEO John Cryan said state aid was “out of the question.”

Die Zeit reported on Wednesday that Germany was working on a contingency plan, including possible scenarios considering the option of a government stake in case the lender needs a capital injection to cover litigation costs. The Finance Ministry said in a statement that it’s not preparing a rescue plan for the lender.

“On paper, banks offer an attractive value opportunity, but you have a capital problem and an income problem,” said Man Group Plc CEO Luke Ellis, who also spoke at the panel discussion. “It’s very hard to value a bank in any sensible way.” Man Group is the world’s largest publicly traded hedge-fund manager.

Allianz, which is based in Munich, is one of the world’s biggest asset managers through its Pacific Investment Management Co. and Allianz Global Investors units. Andreas Utermann, who runs Allianz Global Investors, said Monday that the German government will have to bail out Deutsche Bank if its financial situation gets bad enough.

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