Deutsche Bank needs a convincing business case to attract investors, senior officials from the International Monetary Fund have said amid fears Germany’s biggest bank will need to raise funds to avoid being crippled by a $14bn (£10.5bn) penalty from the US for a decade-old scandal.
The officials from the IMF – which has described Deutsche as the world’s riskiest bank – also denied suggestions that European banks were facing tougher punishments from the US authorities than domestic ones.
Peter Dattels, IMF deputy director, said Deutsche was being monitored by both the German and European authorities to ensure it remained resilient.
Deutsche’s shares dropped to 30-year lows last week amid fears any settlement with the US Department of Justice for mis-selling residential mortgage backed securities between 2005 and 2007 would drain its financial resources.
John Cryan, chief executive of Deutsche, will be in Washington for the annual meeting of the IMF this week. Many speculate he could negotiate the cost. News agency AFP has reported that the settlement will be $5.4bn and Deutsche has made clear it has no intention to paying the $14bn suggested by the DoJ.
Dattels described three sorts of problem banks: those with a legacy of non-performing loans, those that that had been recapitalised and restructured but were still struggling, and investment banks moving away from a business model based on huge balance sheets.
“Deutsche Bank is in the third bucket. It needs to continue to adjust to convince markets that its business model is viable and it is dealing with operational risks resulting from litigation. I’m sure these challenges will be met.”
Matthew Jones, IMF assistant director for monetary and capital markets department, said fines were because misconduct had been identified and to “create a culture of responsible finance”.
“A number of decisions have been taken against institutions which have affected their share price because of the effects on profitability. If you look at the magnitude of the fines in the US it is not the case that non-US institutions have suffered more. US institutions have suffered more fines relative to other countries.”
Although Deutsche has not yet announced any settlement with the DoJ, its shares have risen from below €10 to above €12 on Wednesday.
Analysts at Berenberg said it seemed inevitable Deutsche would need fresh funds. But they questioned whether the bank had an attractive investment case for investors. “A capital raising seems inevitable, but core profitability is weak and it is unclear what return investors could earn on any new capital. Exposed to an industry in structural decline, it is hard to see Deutsche delivering a [return on equity] above 5% and is one of many banks to avoid,” Berenberg analysts said.
Cryan is in the early stages of a five-year turnaround programme which includes selling off businesses, cutting workforce and reducing the risks the bank takes.
The Briton who has been running Deutsche for 15 months last week reassured staff that the bank met all its regulatory capital requirements and blamed “forces in the market” for trying to destabilise the bank.
