Deutsche says Europe crisis could kill weak banks
Europe's sovereign debt crisis will stunt bank profit for years and could kill off the weakest, Deutsche Bank
Prospects for the financial sector overall ... are rather limited, the CEO of Germany's top bank said on Monday. The outlook for the future growth of revenues is limited by both the current situation and structurally.
Ackermann was speaking at Frankfurt's annual Banks in Transition conference against a backdrop of gloom in the capital markets, where fears some euro zone countries could default on their debts have sent investors scurrying for shelter.
Many European banks could go under if they had to accept a haircut at current market valuations on their entire sovereign debt holdings instead of the 21 percent writedown that has been proposed on Greek sovereign debt, Ackermann warned.
It's stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels, he said.
Fears about how the crisis will play out have struck the inter-bank lending market and made it difficult for banks to raise even long-term financing, said Ulrich Schroeder, head of German government-backed KFW
The situation for banks is more dramatic than it was in 2008, he said in a panel discussion at the conference. In 2008, governments were still able to support their banks. Now this is simply no longer possible, Schroeder said, adding that he knows of no bank that is able to issue a seven- or eight-year bond in the current environment.
Bank shares tumbled further on Monday with the STOXX Europe 600 banking index <.SX7P> closing down 6 percent to its lowest level in 29 months, after tumbling by a third in value since the beginning of the year.
The chances of a near-term recovery remain slim as eurozone debt concerns, structural reform and a lawsuit for allegedly mis-selling mortgage debt all weigh heavy on the sector, Manoj Ladwa, a senior trader at ETX Capital, said.
Deutsche stock fell almost 9 percent, with shares in Swiss rival Credit Suisse
A U.S. regulator sued 17 large banks and financial institutions on Friday over losses on about $200 billion of subprime bonds, adding to the sector's woes.
Credit Suisse chairman Urs Rohner said the new regulatory environment had curtailed the risky activities for banks, but would also result in lower profits.
Shareholders in banks need to come to terms with lower returns, Rohner told the conference.
Despite his gloomy outlook for profits, Ackermann rejected calls made by the International Monetary Fund (IMF) chief Christine Lagarde, for mandatory capitalization of European banks to prevent a world recession.
A forcible recapitalization would threaten to send the signal that politics has lost faith in the ability of existing measures to succeed, said the boss of Germany's biggest lender, adding that market volatility will remain for as long as there is insecurity over Europe's ability to tackle the debt crisis.
The chairman of French rival BNP Paribas
The stress tests that we carried out in Europe ... lead one to think that it's not obvious today that the banking system needs to be recapitalized, (although) some banks do, without a doubt, said Michel Pebereau.
DOWNWARD SPIRAL?
Bank lobby group the Institute of International Finance, of which Ackermann is the chairman, said in a statement: In a pattern echoing that of the 2007-09 financial crisis, there is a growing risk of the real economy and financial conditions being locked into a mutually-reinforcing downward spiral.
Ackermann said that the financial services industry needed to go beyond curbing the excesses of the past and reevaluate what role banks play in the global economy, signaling that the lender will not revive some of the risky businesses that in the past helped the investment bank led by Anshu Jain generate the lion's share of profits.
Deutsche has already warned that reaching its goal of 6.4 billion euros ($9.1 billion) in pretax profit for this year was becoming more difficult and required a quick and sustained resolution of the European sovereign debt crisis.
The crisis has kept banks hostage to market concerns about their capital strength and access to funding, concerns that were stoked again last week when a European source told Reuters that the IMF saw a capital shortfall of 200 billion euros ($284 billion) among European lenders.
Russian banks could lose around 350 billion roubles ($12 billion) in the event of a serious debt shock in the euro zone but stress tests show they would withstand the blow, central bank official Sergei Moiseev said in Sochi.
As the prospects recede for a return of confidence, some major lenders, including Barclays
Ackermann said that if the weaker market activity seen in August continued in to September and October, Deutsche Bank too would have to think about job cuts.
The chief executives of Commerzbank
They are all due to speak at the conference on Tuesday.
(Additional reporting by Harro ten Wolde in Frankfurt, Dominic Lau in London and Oksana Kobzeva in Sochi; Writing by Andrew Callus and Sitaraman Shankar; Editing by Helen Massy-Beresford, Jon Loades-Carter and Alexander Smith)
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