Deutsche in Distress

Deutsche, one of the top 10 biggest global banks was described as the world’s most dangerous bank by the International Monetary Fund. The Bank is facing a giant penalty of $14bn from the US Department of Justice for alleged mis-selling of mortgage bonds before the financial crisis of 2008.

With assets value worth around €1.6tn and 100.000 employees across 70 countries, the bank is said to be “too big to fail”. However Deutsche's theoretical value (its assets minus its liabilities) is closer to €67bn. The actual figure might be closer to €14bn however, after pricing in the fines and the substandard assets.

 With the Lehman Brothers’ story still fresh in investors’ memories, even a faintest hint of a banking crisis is met with a strong negative reaction. Deutsche bank’s share price at an all-time low displays these fears about the business. The initial Bloomberg report led to a 200 point drop in the Dow Jones industrial average on 29th of September.

After the 2008 crisis, systems have been implemented to allow banks sell assets to raise money as well as sell shares in itself. The German Government could come to rescue, however sources have been reporting that German Chancellor Angela Merkel would not be prepared to provide assistance. This is because earlier in summer, Merkel took a stance to dismiss a similar aid package for Italy’s ailing lenders, and now offering state assistance will not sit well with her prior view.

ECB’s president Mario Draghi has refuted claims that the European Central Bank is to be blamed for Deutsche bank’s issues. He told reporters that “If a bank represents a systemic threat for the euro zone, this cannot be because of low interest rates - it has to do with other reasons.”

Some analysts are of an opinion that the US Department of Justice will not want to push with the fine as Deutsche going under will certainly threaten the US banks as well.

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Reuters: Business News