German Chancellor Olaf Scholz yesterday defended the profitability of Deutsche Bank (DB) after the entity’s shares posted their biggest drop in three years, dragged down by general concern about the European banking sector in recent weeks. “Deutsche Bank has fundamentally modernized and reorganized its business model and is a very profitable bank; there is no reason to worry,” Scholz said at a press conference in Brussels when asked about the bank’s situation.
The collapse of the DB titles of up to 14% at some point in the day on the Frankfurt Stock Exchange – its biggest drop since March 2020, at the beginning of the coronavirus pandemic – occurred after the entity announced a plan of debt buybacks, a measure that is usually considered a sign of strength.
The plan foresees redeeming 1.5 billion dollars of subordinated debt on May 24, before its maturity in 2028, and was announced on the first day that the bank had the right to notify it with “all required regulatory approvals,” said the entity, which specified that it will repay the bonds at one hundred percent of their nominal value “with the interest accrued up to the amortization date.”
But the announcement, instead of reinforcing confidence, unleashed doubts about the German bank, which caused a deep impact on the European banking sector, as the current greater anxiety in the markets has made investors perceive the decision of Deutsche Bank as a sign of weakness. As a result, Commerzbank also experienced a turbulent day, with a drop of up to 9.3% yesterday morning.
The crash at Deutsche Bank occurred in the midst of the bank’s calm phase after years of chaining crises and problems, which ended with a four-year restructuring plan that meant cutting thousands of jobs and abandoning a large part of its banking business. investment banking.
Leading bank in Germany, last year it was the eighth in Europe in assets, with 1.32 trillion euros, according to the ranking of S
Its chief executive, Christian Sewing, who took over in 2018, even explored a merger with German rival Commerzbank in 2019 at the behest of then-Chancellor Angela Merkel’s coalition government of conservatives and Social Democrats, but ultimately decided against it. . In 2022, Deutsche Bank posted its best profit in fifteen years, more than doubling compared to 2021.
Gone was the entity’s most chaotic stage, the result of the turnaround at the beginning of the 1990s in which, wanting to compete with the big US investment banks, it embarked on various acquisitions and signed up for a more speculative banking culture. Thus, in the decades between 2000 and 2010, it found itself in a morass of litigation and lawsuits for illegal practices, money laundering and rate manipulation, which resulted in legal convictions and large fines. The most notorious was that of 2017, which forced it to pay $7.2 billion to the United States to settle lawsuits over the bank’s role in the 2007 subprime crisis.
Deutsche Bank made its cure in two sections: in 2018 – the date of Sewing’s appointment – ??it announced a cut of 7,000 jobs and a reduction in activity in the capital markets division; and in 2019, it notified 18,000 layoffs and said goodbye to the third-party share business. Christian Sewing’s term, early renewed in 2021, continues through 2026.
Social Democratic chancellor Olaf Scholz, who in those years closely observed the evolution of Deutsche Bank as finance minister in the Merkel government, stated yesterday that “for years we have made the right decisions to stabilize the banks in Europe”, and that, in general terms, “the European banking system is robust and stable and we have the necessary supervision structures”.
