Germany’s exports account for almost half of economic output and equals over 9% of Germany’s GDP. A relief for Germany came yesterday when Deutsche Bank (DE:DBKGn) and DAX 30 rallied. The threat of the penalty has pushed the bank’s shares to lows of €10.15, Deutsche Bank’s lowest price in a quarter of a century.
Investor confidence has since regained ground following reports that Deutsche Bank’s CEO John Cray will be lobbying for a smaller settlement amount. The proposed fine of $14 billion is rumoured to be reduced to about $5.4 billion. The re-negotiation strategy has proven to have an impact on markets, raising the price of Deutsche Bank, to around the €11.60 mark.
There has been much speculation over Deutsche Bank in recent months. Earlier this year investors raised concerns over Deutsche Bank’s exposure to the energy sector. In addition to this, concern was raised over the bank’s leverage ratio — Asset losses a bank can withstand before it collapses – that it was the riskiest among its competitors. Due to the lender’s capital levels falling behind other major banks, questions have been raised by analysts about the financial sustainability of Deutsche Bank.
‘’Deutsche Bank has a lower capital ratio than the US banks before the 2008 financial crisis,’’ says Thomas M Hoenig, Federal Deposit Insurance Corporation (FDIC) Vice Chairman. According to Hoenig capital reserves are ‘’inadequate’’
With elections due next year, Chancellor Angela Merkel has little room to publically sympathise with Deutsche Bank. The politician, who acted quickly to quench the notion of a Deutsche Bank government bail-out, has to appear to remain firm on the bank’s misbehaviours. Voters and analysts alike have lost patience with the financial sector. In the years preceding the banking crisis, voters are calling out for more transparency and accountability of banking practices – a topic which banks, including Deutsche Bank are continuously faltering on.