Olaf Scholz dismissed comparisons between Deutsche Bank and Credit Suisse as a slump in the German lender’s shares caused further turmoil for the banking sector.
He said after Deutsche shares fell as much as 14 per cent on Friday, the German Chancellor sought to shore up confidence in the country’s largest bank, with investors still nervous after the forced takeover of Credit Suisse last weekend.
“Deutsche Bank has fundamentally modernized and reorganized its business and is a very profitable bank,” Scholz said at a summit in Brussels after being asked if the lender was the new Credit Suisse. “There’s no reason to worry about it.”
He added that “the capitalization of European banks is resilient, because of the work [we’ve put in] over the past few years and also due to the efforts of the banks themselves.
Scholz’s comments came as part of a concerted bid by European leaders to calm market nerves as shares slid in the region’s biggest banks.
Christine Lagarde, president of the European Central Bank, told the eurozone summit the banking sector is “strong” and the ECB is fully equipped to provide liquidity to the eurozone financial system if needed, according to EU officials.
Like many of its peers in Europe, Deutsche’s shares have slumped this year, losing more than a fifth of their value amid investor worries about rapid interest rate rises and global financial stability. Concerns about the health of the sector have been heightened by the hard work of Credit Suisse, as well as the collapse of Silicon Valley Bank in California and the struggles of other US regional lenders.
Shares in Germany’s Commerzbank and France’s Société Générale fell about 6 percent in afternoon trade, leaving the Stoxx 600 bank index 4.1 percent weaker. Deutsche was trading 8.4 percent lower, after recovering some losses.
Analysts say there is no fundamental reason to lower Deutsche’s stock.
“Investors are worried about the health of the bank. We are relatively relaxed because of Deutsche’s strong capital and liquidity position,” said Stuart Graham of Autonomous Research in a report. “We are not worried about Deutsche’s viability or asset markup. Let’s be clear – Deutsche is not the next Credit Suisse.
Andrew Coombs, an analyst at Citigroup, added that investors were trying to understand the move in share prices, adding: “We see this as an irrational market.”
Deutsche has had years of scandal and controversy. But fortunes improved after a major restructuring program that saw investment banks shrink and sell off billions in toxic assets.
Revenue and profit hit a 15-year high in 2022, largely due to fixed income trading units.
However, the bank’s domestic retail lender is barely profitable and its asset management business has seen outflows following the greenwashing scandal. Its market capitalization is just €17bn and it trades at a discount of more than 70 per cent to the book value of its assets.
French President Emmanuel Macron suggested speculators were behind share prices but the fundamentals of Europe’s banking sector remained solid.
Leaders called for the completion of the EU banking union project, which aims to harmonize European rules along with greater centralization of regulation, saying that the project “significantly strengthens” the banks after it was created in 2014.
Dutch Prime Minister Mark Rutte said the fundamental foundations of the European banking union and its supervisory system were strong, giving “absolute clarity that our European banks are safe”.
Additional reporting by Alice Hancock and Javier Espinoza