Deutsche Bank: the biggest banking threat in Europe?

Renewed angst in eurozone bond markets has raised questions about the stability of Europe’s banks. Yet arguably the bloc’s most pressing banking problem “isn’t in Italy or the periphery, but at its core”, said Reuters’ Jamie Mcgeever on Twitter. Shares in Germany’s largest lender, Deutsche Bank, hit a record low last week after two events stateside shook confidence. First came word that the US Federal Reserve had “secretly” put the bank’s American ops on its “troubled” watch list, said Tyler Durden on Zero Hedge. Then Standard & Poor’s cut Deutsche’s credit rating to BBB+, the third lowest investment grade, citing significant “execution risk”.

“This is nothing that keeps us awake at night,” shrugged a spokesman, noting that Deutsche has already refinanced successfully this year. Still, it’s a “fresh setback” to new CEO Christian Sewing’s “efforts to reinvigorate Europe’s largest investment bank”, said Bloomberg. Shares are already 42% down on the year and 90% down on their 2007 pre-crisis high. By raising funding costs, this downgrade could further weaken market share and revenues. Now, “in a separate blow”, Deutsche is also in the dock in Australia – facing criminal cartel charges over its role as an underwriter in the growing scandal surrounding ANZ’S A$2.5bn share sale in 2015.

“Germany is brilliant at football, classical music, engineering and beer,” said Lex in the Financial Times. Perhaps “banking incompetence” is “a deliberate strategy to make the nation more relatable to other Europeans”. But while “panic remains a threat”, there are limits. “Germany will not let this battered national champion go bust” – and may indeed gain inspiration from the mooted merger between France’s Socgen and Italy’s Unicredit. A country that produced “the Porsche 911 and four World Cup wins” could probably “manage to jam together Deutsche and fellow struggler Commerzbank”.