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| European Banks Shed 20,000 Jobs as Worries Grow Over Deutsche Bank |
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The U.S. Department of Justice accuses Deutsche Bank of misselling mortgage securities, residential loans repackaged as bonds and sold to investors, dating back to 2005.
Regulators have put the initial fine at $14 billion; Deutsche Bank says that is just an "opening position."
Analysts agree.
"I think it’s very likely the fine will be negotiated down.
The big question is by how much, just how big it will end up being.
Deutsche Bank has suggested that it envisages a fine between 3 and 5 billion, which would be just about affordable for Deutsche Bank.
But in fact it seems to be quite a lot higher."
If it is much higher, analysts say Deutsche Bank would have to raise funds by tapping shareholders for cash.
If that failed, under new European rules major share and bond holders would have to come up with what’s known as a "bail-in."
The last resort would be a state rescue.
"I think that a state bailout is possible.
The German government is in a very good position to bail out the bank in terms of its public finances.
Its debt is relatively low, has no deficit.
But the difficulty will be a political one.
Germany after all has resisted similar bailouts in Italy very recently and in Greece before that."
The German government and Deutsche Bank insist there has been no discussion of a state bailout.
Some government officials blame the European Central Bank’s policy of ultra-low rates which has hurt bank profitability.
Poor profits have hit other banks with Germany’s Commerzbank cutting one in five of its workforce, and Dutch giant ING shedding several thousand employees.
Several Italian banks are also on the brink of needing state help.
So is Europe headed for a repeat of 2008 and another banking crisis?
Austria’s Finance Minister says safeguards are in place.
"After the financial crisis, we’ve not quite worked through the banking issues but what I am very convinced of is that we do not have a banking crisis, we have a profitability crisis in our banks."
Recent stress tests suggested the vast majority of European banks are strong enough to survive.
But with little sign that interest rates will rise soon, the challenge to banks’ balance sheets seems likely to continue.
Henry Ridgwell for VOA News, London |
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