German finance minister and bank chief insist: Deutsche is 'rock solid'
John Cryan, the chief executive of Deutsche Bank, has come out publicly to claim the bank is “rock solid” following a dramatic drop in the troubled German giant’s share price.
The British banker, who only joined Deutsche seven months ago, maintained that there was no reason to panic and called on his staff to spread that message to clients.
“You can tell them that Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position,” he said in a letter to employees.
His plea was followed by Germany’s finance minister Wolfgang Schaeuble who took the unsual step of also trying to reassure investors in the lender. “I have no concerns about Deutsche Bank,” he said.
Shares in Deutsche tumbled another 4.7pc on Tuesday. The bank’s shares fell to €13.26 and are now down 46pc since the start of the year and 58pc in the last six months. Last month the bank reported a €6.8bn (£5.3bn) loss for 2015.
Deutsche has led the wider banking market down as fears spread over the profitability and financial stability of Germany’s biggest bank. Yesterday Swiss institution Credit Suisse’s shares were down by almost as much, plunging 7.75pc. Spooked investors also sold off shares in other banks, leaving Barclays down 5.2pc, BNP Paribas down 4.8pc and Italy’s Intesa Sanpaolo down 4.9pc.
The turmoil in stock markets since the start of the year has been driven in part by worries over the strength of China’s economy as well as the crash in commodities prices, but investors are particularly concerned by the banking sector’s ability to cope with another downturn.
Investors have also been fleeing Deutsche’s bonds. Analysts have warned that if the bank has any large unexpected costs it may, from next year, be unable to pay the interest on its contingent convertible bonds (or “cocos”). The relatively risky class of securities - also known as AT1s - is designed to ensure that institutional investors pay the bill to help bail out any troubled bank, rather than the taxpayer.
“Deutsche Bank is determined to pay coupons, not least because it needs to issue at least another €3bn - €4bn of AT1s to meet its leverage ratio targets ,” said Simon Adamson at CreditSights.
Mr Cryan also said he has told investors that the bank has the capacity to pay their “coco” coupons.
“On Monday, we took advantage of [our financial] strength to reassure the market of our capacity and commitment to pay coupons to investors who hold our AT1 capital. This type of instrument has been the subject of recent market concern,” the chief executive said.
“The market also expressed some concern about the adequacy of our legal provisions but I don’t share that concern. We will almost certainly have to add to our legal provisions this year but this is already accounted for in our financial plan.”
Analysts said the crash in the bank’s share price seems to be an overreaction by nervous investors who have been burned by volatility in recent weeks, resulting in a self-feeding cycle of falling prices. Deutsche Bank’s restructuring includes plans to sell German retail arm Postbank and cut 15,000 jobs.
( Source )