Olaf Scholz has dismissed settlements between Deutsche Bank and Credit Suisse as a slump in the German lender’s shares sparked another day of turbulence for the banking sector.
After Deutsche shares fell as much as 14 percent on Friday, the German chancellor sought to boost confidence in the country’s biggest bank as investors remained nervous after last weekend’s forced takeover of Credit Suisse.
“Deutsche Bank has fundamentally modernized and repositioned its business and is a very profitable bank,” said Scholz at a summit in Brussels when asked whether the lender was the new Credit Suisse. “There’s no reason to worry about it.”
He added that “thanks to the work, the capital adequacy of European banks is robust [we’ve put in] in recent years and also thanks to the efforts of the banks themselves.”
Scholz’s comments came amid a concerted bid by European leaders to calm market nerves as shares in the region’s biggest banks tumbled.
European Central Bank President Christine Lagarde said at the euro-zone summit the banking sector is “strong” and the ECB is fully equipped to provide liquidity to the euro-zone financial system when needed, according to an EU official.
Like many of its European peers, Deutsche stock has fallen this year, shedding more than a fifth of its value, as investors worry about rapidly rising interest rates and global financial stability. Concerns about the health of the sector were compounded by the troubles at Credit Suisse, as well as the collapse of California’s Silicon Valley Bank and struggles by other regional US lenders.
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German shares were down 8.5 percent in European trading, while German rival Commerzbank was down 5.4 percent and France’s Société Générale down 6.1 percent, pushing the Stoxx 600 banking index down 3.7 percent.
Analysts said there was no fundamental reason for the sharp fall in Deutsche shares.
“Investors are worried about the health of the bank. We are relatively relaxed given Germany’s robust capital and liquidity position,” said Autonomous Research’s Stuart Graham in a report. “We have no concerns about the profitability or wealth metrics of the Germans. To put it bluntly: Deutsche is NOT the next Credit Suisse.”
Andrew Coombs, an analyst at Citigroup, said investors are trying to understand stock price action, adding, “We view this as an irrational market.”
The German went through years of scandals and controversy. But its fortunes improved after a major restructuring program that saw it wind down its investment bank and divert billions in toxic assets for sale.
Sales and earnings hit 15-year highs in 2022, driven largely by the fixed income trading unit.
However, the bank’s domestic retail lender is barely profitable and its wealth management business has suffered outflows following a greenwashing scandal. It has a market cap of just €17 billion and trades at a discount of more than 70 percent to the book value of its assets.
French President Emmanuel Macron indicated that speculators were behind the falls but that banking sector fundamentals in Europe are solid.
Leaders called for the completion of the EU’s Banking Union project, which aims to harmonize European rules alongside greater centralization of regulation, and said the project has “significantly strengthened” banks since its inception in 2014.
Dutch Prime Minister Mark Rutte said the underlying fundamentals of the European banking union and its supervisory regime are strong and give “absolute clarity that our European banks are safe”.
Additional reporting by Alice Hancock and Javier Espinoza