Deutsche Bank’s chief executive has said he may have to consider cutting costs in a stark warning of the fragile growth prospects and difficult business climate for Europe’s banks.
Josef Ackermann rejected calls for compulsory recapitalization of banks - as suggested by Christine Lagarde, managing director of the International Monetary Fund, last month - but acknowledged many European banks would not survive having to write down sovereign bond holdings to their market value.
The shares of Germany’s largest bank fell on Monday to their lowest level since March 2009 amid concern over an economic downturn and the bank’s legal risks. The Financial Times reported on Monday that deals structured by Deutsche were being examined by U.K. fraud investigators, while the bank was among 17 financial institutions sued in the U.S. for allegedly mis-selling mortgage-backed securities.
Speaking at a conference in Frankfurt organized by the Handelsblatt newspaper, Mr. Ackermann said fraud would have to be proved and said Deutsche had not deliberately misled investors. He also suggested banks should work more closely together to rebut the allegations.
Europe’s sovereign debt crisis, its low structural growth and increasing regulation meant it would “be difficult for the European financial sector as a whole to increase its profits”, Mr. Ackermann said.
Deutsche has been one of the international investment banks to keep staff levels relatively stable through the financial crisis. Mr. Ackermann said there was no current cost-cutting plan for the bank but admitted this would be more likely if business continued to be as weak as it was in August.
Economic policymakers needed to use as many instruments as possible to stimulate global growth, said Mr. Ackermann. Banks also needed to ask themselves more questions about the usefulness of many of their services for the real economy.
Mr. Ackermann said suggestions for a forced recapitalization of European banks were “of little help ... and not justified”. “It would threaten to undermine the credibility of the package [for Greece and other crisis-hit EU states]if politicians were, through forced recapitalization, now to send the signal that they don’t believe that the measures taken will be successful,” Mr. Ackermann said.
The chief executive will hand over management control next year while seeking backing to become Deutsche’s supervisory board chairman. The Swiss-born Mr. Ackermann also said he would step down as president of the Institute of International Finance, a banking lobby group.
Deutsche shares were down 8 per cent in early afternoon in Frankfurt to €23.94, making the bank worth some €22bn ($31-billion U.S.) - its lowest market capitalization since a €10.2-billion rights issue completed last October.