European banks face collapse under debts, warns Deutsche Bank chief Josef Ackermann
Josef Ackermann, the chief executive of Deutsche Bank, Germany's biggest bank, has warned that "numerous" European lenders would collapse if they were forced to book their losses on stricken sovereign bonds.
180 CommentsDeutsche Bank CEO says
"It's Obvious Many Banks Will Not Survive if Forced to Value
Sovereign Debt at Market Prices"
Tuesday, 6 September 2011
Mr Ackermann said that the value of billions of euros of loans has plunged to a level that could overwhelm smaller banks.
He told a conference in Frankfurt: "Numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels."
Mr Ackermann said market conditions were as febrile as the height of the banking crisis. "We should resign ourselves to the fact that the 'new normality' is characterised by volatility and uncertainty," he said. "All this reminds one of the autumn of 2008."
The volatility was demonstrated as Deutsche Bank shares tumbled 8.9pc as banks led a stock markets lower across Europe.
Deutsche Bank's shares closed at €23.79, valuing the company at €21.6bn (£18.9bn) - its lowest level since it completed a €10.2bn rights issue last October. The Stoxx Europe 600 banking index fell to its lowest level for 29 months. The DAX fell to its lowest level in two years.
Traders said fears over the banks' exposure to European debt were exacerbated by the uncertainty of the US legal cases and regulatory reform.
The debt crisis has also squeezed bank revenues as mergers and acquisitions – as well as stock market listings – have been shelved. Trading figures have also fallen. Mr Ackermann said that bank profits will take a long time to recover.
"Prospects for the financial sector overall... are rather limited," he said. "The outlook for the future growth of revenues is limited by both the current situation and structurally."
Deutsche Bank has already warned that it could miss its target of €6.4bn pre-tax profits this year without a quick and sustainable resolution of the European debt crisis.
Even so, Mr Ackermann firmly rejected the proposal by Christine Lagarde, the new head of the International Monetary Fund, for another round of recapitalising European banks.
Mr Ackermann claims that the move would be "counterproductive" and argued that "a forced recapitalisation would give the signal that politicians do not themselves believe in the measures" they have implemented to bolster fragile eurozone countries.
Ms Lagarde has said banks need another capital injection to "avert contagion". She told reporters she believed it is "necessary to recapitalise European banks so that they are strong enough to withstand the risks linked to the debt crisis and weak growth".
http://globaleconomicanalysis.blogspot.com/2011/09/deutsche-bank-ceo-says-its-obvious-many.html
Josef Ackermann, CEO of Deutsche Bank admitted the obvious today with statements recognizing that many organizations will fail at mark-to-market pricing. To show you the Fantasyland world these bankers live in, Ackermann also believes European banks are now much better capitalized and less dependent on short-term financing.
Courtesy of Google Translate please consider Many banks will not survive if forced to value sovereign debt at market prices
The chairman of Deutsche Bank, Josef Ackermann, today highlighted another obstacle to resolving the debt crisis that crosses the euro zone.
"It is obvious that many organizations will not survive in the event of having to reassess their portfolios of sovereign debt at market prices," Ackerman said in his speech at a banking conference held in Frankfurt.
These comments came after the controversy arose Christine Lagarde, managing director of IMF, which has called for an urgent recapitalization of European banking. According to the institution, the shortage could reach 200,000 million euros, resulting from exposure to sovereign debt.
Ackerman believes that the turmoil facing the financial sector is reminiscent of the crisis suffered in 2008 after the collapse of Lehman Brothers, but also believes that European banks are now much better capitalized and less dependent on short-term financing term.
However, the president of Germany's biggest bank predicted a long period of difficulties for entities to still "have not provided convincing answers to the crisis," while the prospects for revenue growth are "limited to some extent ".
Somehow we are supposed to believe banks do not need to raise capital, even though banks cannot survive mark-to-market pricing, and even though a very biased head of the IMF states that European banks need to raise capital.
Only in the fantasyland world where there are no sovereign debt defaults can banks remotely be considered adequately capitalized. The stress-free tests came to the same conclusion as Ackermann by the same ridiculous measure (assuming no losses on sovereign debt).
Europe rejects IMF call for more bank capital
Reuters reports Europe rejects IMF call for more bank capital
European politicians on Thursday rejected an International Monetary Fund call for banks to raise up to 200 billion euros ($290 billion) in new capital, adding to fears that policymakers may be underestimating the severity of the debt crisis.
IMF chief Christine Lagarde's call on Saturday for mandatory capitalization of European banks to prevent a world recession has reignited a debate over whether they have raised sufficient capital to withstand a severe downturn.
The IMF, the International Accounting Standards Board (IASB) and bank analysts have voiced concerns about a capital shortfall, while European regulators, politicians and banking associations argue that banks have a sufficient cushion to cope with market turbulence and worries over sovereign debt after several rounds of capital raising across the continent.
A European source told Reuters on Wednesday that the IMF had estimated European banks could face a capital shortfall of 200 billion euros, a figure rejected by European bankers and policymakers.
The IMF figure is much higher than European Union estimates of banks' capital needs following stress tests in July which showed banks needed to raise 2.5 billion euros ($3.6 billion), less than had been expected before the tests.
DAX Down 30% from Year's High, Bank Stocks Hammered Again
Bloomberg reports German Stocks Drop to Two-Year Low as Deutsche Bank, Commerzbank Decline
German stocks retreated to their lowest level since August 2009 after German Chancellor Angela Merkel’s party suffered its fifth election loss this year and European services and manufacturing growth weakened in August.
Deutsche Bank AG (DBK) fell to its lowest price since March 2009 as the lender is among 17 sued by the U.S. for $196 billion.
The benchmark DAX Index (DAX) slumped 5.3 percent to 5,246.18 at the 5:30 p.m. close in Frankfurt, its third straight decline. The gauge has retreated 30 percent from this year’s high on May 2 as reports in Europe and the U.S. spurred concern that the economic recovery is stalling. The drop has left the DAX trading at 8 times the estimated earnings of its companies, the lowest valuation since Bloomberg began collecting the data in 2006. The broader HDAX Index declined 5.2 percent today.
Deutsche Bank, Germany’s biggest bank, plummeted 8.9 percent to 23.72 euros, its lowest price in more than two years, as it was among 17 banks to be sued by the U.S. to recoup money spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac.
The Frankfurt-based lender declined to comment on a Financial Times report that the U.K. Serious Fraud Office is examining Deutsche Bank’s packaged securities deals for signs of wrongdoing. The SFO hasn’t started an official investigation and is at the stage of gathering evidence, the FT said.
US and European Banks Had Ample Opportunity to Recapitalize
US and European banks had ample opportunity to recapitalize in late 2009 and all of 2010 in the wake of global reflation tactics by Fed chairman Ben Bernanke and central bankers in general. They failed to do so.
It's crystal clear to everyone but bankers and brain-dead analysts that banks need to recapitalize, except now it will happen after share prices have collapsed.
Bank of America is now trading at $7.25 (and barring a miracle it will be lower tomorrow). It could have and should have raised capital when shares were close to $20 in April 2010. Of course Bank of America should never have purchased Countrywide Financial or Merrill Lynch in the first place, so one has to wonder what the hell these CEOs do for the enormous salary and benefits compensation they receive.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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