Dombret Says German Banks’ Solvency, Liquidity Beyond Doubtby
Bundesbank official declines to comment on Deutsche Bank
Dombret supports mergers if they deliver sustainable profit
Germany’s banks have sufficient capital and access to liquid funds, according to Bundesbank board member Andreas Dombret.
“From our point of view, the solvency and the liquidity of the German banking market is beyond any doubt,” Dombret said in a Bloomberg Television interview in London on Wednesday.
He declined to comment specifically on Deutsche Bank AG, which some investors say needs more capital as it faces billions in legal costs. The U.S. Justice Department has requested $14 billion to settle civil claims over the bank’s pre-crisis mortgage-backed securities business.
That initial figure triggered a selloff in the shares and fueled investor concerns about the bank’s financial strength. The stock rose 0.5 percent to 12.51 euros as of 2:41 p.m. in Frankfurt, bringing its decline to 44 percent this year. It’s the fourth-worst performer on the Bloomberg Europe Banks and Financial Services Index, which has slipped 20 percent.
Deutsche Bank recorded 5.5 billion euros ($6 billion) in reserves for litigation at the end of June. Chief Executive Officer John Cryan, who’s been cutting jobs to lower costs, has said he doesn’t plan to raise capital or need taxpayer aid and expects U.S. authorities to lower their initial demand.
Deutsche Bank’s bonds have pared their declines from last month’s selloff. The bank’s 1.75 billion euros of 6 percent additional Tier 1 bonds, the first to take losses in a crisis, are quoted at 78 cents on the euro, up from an eight-month low of 72.5 cents on Sept. 26, according to data compiled by Bloomberg. The notes are still below their one-year average of 83 cents on the euro, the data show.
Banks in Germany and across Europe are struggling to boost profits as record-low interest rates eat into lending revenue. Supervisors have an interest in bank mergers, if they contribute to “sustainable, reasonable profitability,” said Dombret, who is also a board member of the European Central Bank branch that oversees euro-area banks. Lenders should be producing higher returns given economic conditions, he said.
“Especially if you look to Germany, where the economy is going reasonably well, you would expect that in times like that, banks earn their cost of equity,” Dombret said. “They need to do that in order to reserve for worse times, which at some point of course will come.”