Look for local bank shares to take the brunt of any selling today after a bad session on global markets triggered by more speculation about the future of Deutsche Bank.
Shares in Germany’s biggest bank hit new lows overnight, closing down 7.5% in European trading.
Deutsche shares closed at €10.55 – at least a 24-year low according to data collected by Bloomberg. They had earlier touched an intra day low of €10.51.
The plunge happened after weekend media reports that German Chancellor, Angela Merkel, had told Deutsche Bank’s CEO that no help would be forthcoming from the government because she was heading into an election year in 2017 Deutsche Bank is the largest German lender and the fourth largest European bank by assets with $US1.9 trillion as of 2015, behind Crédit Agricole, BNP Paribas and HSBC Holdings.
Earlier this month the US Department of Justice proposed Deutsche pay a record $US14 billion to settle allegations of mis-selling mortgage securities. The bank said it will not pay anywhere near the region of the threatened fine which is approaching its total market capitalisation of $US16.1 billion.
The bank’s shares have lost 52% of their value this year with investors ignoring the bank’s insistence that it is not thinking of a new capital raising, or interested in reports Angela Merkel’s government has rejected any thought of state aid for Deutsche. It is now the 78th largest bank globally ranked by market value – it is well below the value of the CBA at $US95 billion, Westpac at $US77 billion, the ANZ at $US61.5 billion and the NAB just over $US56 billion.
“This question [ie. a government bailout] is not on our agenda: Deutsche Bank is determined to meet the challenges on its own”, said Jörg Eigendorf, the bank’s head of external communications told CNBC in Europe.
“The question of a capital increase is currently not on the agenda, we comply with all regulatory requirements.”
Deutsche’s woes saw Europe’s broader bank index drop 2.6% (and all European markets by 1.3%) – its worst day since the start of August.
Shares in the other big German bank, Commerzbank fell 4%, with Italy’s UniCredit and Mediobanca down 3.6% and 3.9% respectively. Banks in London were also lower with Lloyds down more than 3% and Barclays off 1.9%. In Paris shares in BNP Paribas fell more than 3%. In Australia, shares in the big four banks hardly moved – the CBA was flat and NAB shares rose 0.14%.
That could very well change today after the sell off and nervousness about the first US presidential debate at 11 am Sydney time.
Questioned by MEPs in Brussels overnight Monday, European Central Bank chief Mario Draghi said the central bank would not comment on the state of any individual lenders.
But Mr Draghi warned that all European banks had to do more to boost their profitability, blaming weak profits on “over-capacity” in the continent’s banking system.
The International Monetary Fund earlier this year highlighted Deutsche as the world’s riskiest globally significant lender.
And on Friday, Fitch Ratings noted: “The key challenges for the [German banking] sector remain ultra-low interest rates weighing on profitability, regulatory pressures, intense competition and, in the case of Deutsche Bank, misconduct and litigation charges.”
