It continues to be a tough operating environment for Deutsche Bank AG these days. We should all give thanks that the firm is led by someone of John Cryan's statue (see http://news.efinancialcareers.com/uk-en/244582/truth-about-deutsche-banks-john-cryan/). But the news media and developments continues to be unhelpful. Yesterday, Chancellor Merkel ruled out any state aid or assistance for the German lender, Barron's asks if the German sick man will infect European markets, while Zero Hedge asks if this will be one big test of bail-in arrangements recently in-acted earlier this year. Of course, some of these comments are consistent with earlier pronouncements by the IMF that called the German firm one of the most
important net contributors to systemic risks in the global banking system. I recall a headline in the FT this summer which was entitled Big looks bad when comes to sustainable banking models, by Neil Collins. It does not focus on non-UK banks but the title could apply to European banks too.
The most recent worries were stoked by news that the US DOJ would be seeking a $14 billion fine related to mis-selling mortgage credit products versus stated provisions of less than half that sum. This fine amount rivals what the DOJ hit BoA and JP Morgan with over the past several years.
Deutsche has reportedly built a war chest of liquidity, with Eur 220 billion in liquidity fallback reserves according to the FT, so it is well placed to fend off any short-term liquidity pressures. My issue is more structural and relates to death by a thousand cuts. Higher capital levels, low interest rate conditions hitting NIMs, and the risk of other misconduct costs continues to plague large, mainly European banks even 8 years after the start of the financial crisis. Some bankers continue to face conditions best described as laboratum durus!
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