Germany’s Chancellor, Olaf Scholz, yesterday defended the profitability of mDeutsche Bank ( DB ) after the entity’s shares recorded their biggest drop in three years, dragged down by general uneasiness about the European banking sector of the last weeks “Deutsche Bank has fundamentally modernized and reorganized its business model and is a very profitable bank; there is no reason to worry”, assured Scholz at a press conference in Brussels.
The drop in DB shares of up to 14% at some point in the day on the Frankfurt Stock Exchange – the biggest drop since March 2020, at the start of the coronavirus pandemic – came after the entity announced a debt buyback plan, a measure that is usually considered a sign of strength. The plan calls for redeeming $1.5 billion of subordinated debt on May 24, before it matures in 2028, and was announced on the first day the bank had the right to notify it with “all required regulatory approvals,” it said. point out the entity, which specified that it will repay the bonds at one hundred percent of their nominal value “with accrued interest until the repayment date”.
But the announcement, instead of boosting confidence, triggered doubts about the German bank, which led to a deep impact on the stock market of the European banking sector, as the current greater anxiety in the markets has caused investors to perceive the Deutsche Bank decision as a sign of weakness. Consequently, Commerzbank also experienced a turbulent day, with a fall of up to 9.3% yesterday morning.
The blow to Deutsche Bank came in the midst of the bank’s calm phase after years of chaining crises and problems, capped by a four-year restructuring plan that cut thousands of jobs and ‘abandonment of much of its investment banking business.
Leading bank in Germany, last year it was the eighth in Europe in terms of assets, with 1.32 billion 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 not to. In 2022 Deutsche Bank recorded its best profit in fifteen years, more than double compared to 2021.
Behind was the most chaotic stage of the entity, the result of the turn at the beginning of the nineties in which, wanting to compete with the big investment banks of the United States, it embarked on different acquisitions and signed up to a banking culture more speculative. Thus, in the decades of 2000-2010, he found himself in a quagmire of litigation and lawsuits for illegal practices, money laundering and manipulation of tariffs that brought him court convictions and heavy fines. The most notorious was in 2017, which forced him to pay $7.2 billion to the US to settle lawsuits over the bank’s role in the 2007 subprime crisis.
Deutsche Bank took care in two stages: in 2018 – the date of Sewing’s appointment – ??it announced a cut of 7,000 jobs and a reduction in activity in the capital market division; and in 2019 it notified 18,000 redundancies and the farewell to the business of shares to third parties. Sewing’s mandate, renewed early in 2021, continues through 2026.
Olaf Scholz, who in those years closely observed the evolution of Deutsche Bank as Minister of Finance in Merkel’s government, said yesterday that “for years we have taken 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 supervisory structures”.
