Tuesday, September 27, 2016

Is Deutsche Bank the “litmus test” for the rules of the european banks? – The public.en

With the shares falling over 20% since the beginning of the month, facing the threat of a fine of 14 billion dollars in the United States and with more and more analysts finding signs of fragility in their accounts, Deutsche Bank is now the new focus of the crisis in the european banking sector. And could even be the litmus test for the new banking rules in the euro area, criticized in countries such as Italy and Portugal, but up to now defended with determination by Germany.

The questions surrounding the largest German bank (and one of the largest in the world) there are practically from the beginning of the financial crisis. But in the last few weeks adensaram with the news that the regulatory authority of the financial system in the United States is preparing to require Deutsche Bank to pay damages of 14 billion euros for its role in the outbreak of the international financial crisis in 2008.

This potential fine, although it may still be subject to a negotiation, it is an amount so high that it would be able to put the German bank is in serious difficulties to continue to comply with the capital ratios that they are required. This even in a scenario in which the fine would remain considerably below the 14 billion now required, because of issues such as the exposure of Deutsche Bank to the derivatives markets continue to haunt the financial health of the banking institution.

that Is why, in the markets, it seems to be at this point a given that Deutsche Bank will have to strengthen in the coming times, their capital. It is what it claims, for example, an analyst of an investment firm international, quoted by the Financial Times: "Virtually everyone is now convinced that [the Deutsche Bank] will have to strengthen their capital. They had no margin for error, I don’t see how that can avoid".

This need for increased capital, which would dilute the amounts held by the current shareholders, is the main reason why the actions of the bank have been to lose a large part of its value in the stock markets. Since the beginning of the year, the securities of Deutsche Bank dropped by more than 50%, with the fall to reach more than 20% during this month.

The climate of uncertainty in the markets even more serious if it makes it this time because there still remains the question about how is it that this capital increase may be done. The hypothesis preferred by the directors of the bank and by the authorities is, of course, obtain this capital with private investors. There are those who indicate that Deutsche Bank has as a cushion of safety a volume large of debt securities that may be converted into shares, helping to bring the ratios to healthy levels if necessary.

The problem is if this money coming from the private does not arrive. Will be that there would be no public money available to help?

The first answer given by the German Government during this week seemed to indicate that the availability is not much. "There is no basis for a speculation of this kind," said the spokesman of the government led by Angela Merkel when asked about the possibility of a public intervention in the Deutsche Bank. The own chancellor chose on Tuesday not to make comments on the subject.

at The same time, Hans Michelbach, a prominent member of the party of Merkel, took a position much more clear. "It is unimaginable that came to help the Deutsche bank with taxpayer money. This would lead to a protest of public opinion," he said cited by Bloomberg.

These signals from Berlin have also created more nervousness in the markets, since they put into question the idea many years ago, consolidated that Deutsche Bank is "too big to fail" and that the German State will always by the rescue, in case of need.

The point is that, for Merkel, the issue is not only in the reaction to the opinion in the German public could have to a rescue. Since the beginning of the year, came into force the new rules for the banking sector in the euro area that do not allow that to occur to a capital injection by the State before the shareholders, creditors and even large depositors take their losses.

Until now, Germany has shown itself, before the call for greater flexibility in the rules made by other countries, especially Italy, as the great advocate of the new regime. A change of opinion sharp just to save the Deutsche Bank could be a fatal blow to the legitimacy of Germany to ask that other countries comply with these and other rules.

To Angela Merkel, this would be a difficult challenge. As recently stated in the IMF, the Deutsche Bank is "the bank contributes to systemic risk" and this means that a scenario of losses to shareholders and creditors could have a very significant impact on the rest of the world financial system. This time, Merkel would have to decide if I was willing to risk making Deutsche Bank a "Lehman Brothers european" or if he preferred to sacrifice, with high political costs, the banking rules in europe.


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