There was some rare good news from Deutsche Bank on Thursday.
Point of view
The worry is if Deutsche Bank fell many would followSenior markets analyst at Oanda
Germany’s biggest lender posted an unexpected quarterly net profit – of 278 million euros.
Revenues up slightly to EUR 7.5bn, pre-tax profit of EUR 619m, net income of EUR 278m vs. loss in 3Q 2015 #dbquarter— Deutsche Bank (@DeutscheBank) October 27, 2016
But the main focus is still on how many billions it will have to pay out in US government fines for misselling toxic mortgage-backed securities before the 2007-2009 financial crisis.
The US Department of Justice had initially demanded over $14 billion (12.82 billion euros).
Uncertainty over when the issue will be settled is unnerving investors.
Craig Erlam, senior markets analyst at Oanda, said that worry is hanging over the entire European banking sector: “This is a massively systemically important bank, not just in Germany but in the eurozone as a whole. Aside from the fact that the bank is so big and is probably too big to fail, it really does re-ignite those concerns about the banking region in the euro area as a whole.
“We know the Italian banking system is extremely fragile, it’s responsible for around one third of the bad loans in the entire euro area region so it’s not just a base of what will happen to Deutsche Bank and how can politicians safeguard this. I think there is a domino effect concern here and the worry is if Deutsche Bank fell many would follow.”
Deutsche Bank shares trade unchg as surprise profit overshadowed by legal concerns. At least default probability keeps falling. pic.twitter.com/Ide4vocTYx— Holger Zschaepitz (@Schuldensuehner) October 27, 2016
In a letter to staff, Deutsche Bank’s chief executive John Cryan wrote: “Unfortunately, we have to assume that the situation will stay difficult for a while.”
He added the bank was working hard to wrap up negotiations for the fine “as soon as possible”.
Cryan also pledged to redouble efforts to restructure the bank, which is laying off staff and selling assets.
Deutsche Bank worries: The Bank of England is asking large UK lenders to detail their exposure to the German bank https://t.co/WWNpTlbxcG— Financial Times (@FT) October 26, 2016