- October 5, 2016
- Posted by: Robert Duke
- Category: Articles
The credit crunch in 2008 left its scars on the global economy which the world is still recovering through. And if experts are to be believed, the ongoing Deutsche Bank crisis may lead us to the next economic mayhem. Shares of Deutsche Bank hit 30 year lows this week on increasing concerns about the sustainability of the struggling German lender.
The financial giant has been imposed with a $14bn (£10.5bn) fine by the US Department of Justice for faultily selling mortgage bonds a decade ago. With all these negative sentiments building up in the market, the shares of Deutsche Bank have fallen more than 65 percent in last one year and the market value of its stock has fallen steeply from about $50 billion to nearly $16 billion this week. What seems to be a sign of worry is that the German government has denied any plans of rescuing Germany’s biggest lender.
There has been lot of speculations about the future of Deutsche Bank, since it has deep connections with global financial institutions and banks. Investors and analysts are not completely ruling out the possibilities of a big global economic turndown on the cards. In fact, the International Monetary Fund (IMF) in its June report indicated that the bank was “the most important net contributor to systemic risks”. Jim Willie, a noted expert for his forecasts on currency related collapses, bank defaults, and predictions for gold and silver prices, went a step further and said “If Deutsche Bank Goes Under, It Will be Lehman TIMES FIVE!.”
To boost its capital ratio, Deutsche Bank has recently completed the disposal of British insurer Abbey Life and is in the process of selling its stake in the Chinese Hua Xia Bank. Defending the bank’s position, John Cryan, Deutsche Bank CEO, has sent out a message to his employees where he blamed the speculators for the decline in the bank’s share value. He further stated that the bank has strong credentials with about 215 billion euros in liquidity reserves, which is the most important factor in a worrisome situation like this.
Reacting on John Cryan’s statements, Sigmar Gabriel, German Economy Minister mentioned, “I don’t know whether to laugh or cry that the bank, which turned speculation into a business model, is now calling itself a victim of it.”
It is also to be noted that the German Deutsche Bank received more than twice of the financial assistance received by the failed Lehman Brothers during the financial crisis from 2007-2010. Now facing the wrath of the law, the bank has been facing immense challenges in acquiring more funds in order to stay strong in tough times.
The global banking environment has changed after the financial crisis in 2008. The banks are now required to maintain right amount of reserves and should have contingency plans to recover from major market shocks. The same amount of pressure is on the regulators all over the world to make their economies more immune to market risks.
Deutsche Bank too will have to go through an overhaul which would include cutting down on their workforce of about 100,000, revamping IT, administration and shelling off non-core assets. Most importantly, retaining investor confidence and maintaining liquidity would be the toughest nut to crack for the bank.