Germany’s Olaf Scholz dismisses fears over Deutsche Bank

Germany's chancellor has said there was "no reason to be concerned" about Deutsche Bank. Photo / Stefanie Loos

Written by: Sam Fleming, Andy Bounds and Laura Dubois in Brussels, Guy Chazan in Berlin and Stephen Morris in London

Olaf Scholz has rejected comparisons between Deutsche Bank and Credit Suisse as a slump in the German lender’s shares sparked a further day of turmoil for the banking sector.

Speaking after Deutsche shares fell as much as 14 per cent on Friday, Germany’s chancellor sought to shore up confidence in the country’s biggest bank, with investors still nervous after the forced takeover of Credit Suisse last weekend.

“Deutsche Bank has fundamentally modernised and reorganised 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 is no reason to be concerned about it.”

Scholz’s comments came as part of a concerted push by European leaders to calm market nerves as shares slid in the region’s biggest banks.

Like many of its European peers, Deutsche shares have fallen this year, losing more than a fifth of their value amid investor worries about rapidly rising interest rates and global financial stability. Concerns about the sector’s health have been heightened by Credit Suisse’s travails, as well as the collapse of Silicon Valley Bank in California and the struggles of other US regional lenders.

Deutsche shares closed down 8.5 per cent in European trading, while German rival Commerzbank ended 5.4 per cent down and France’s Société Générale 6.1 per cent, leaving the Stoxx 600 banks index 3.7 per cent weaker.

European Central Bank president Christine Lagarde told the eurozone summit the banking sector was “strong” and that the ECB was fully equipped to provide liquidity to the euro area financial system if needed, according to an EU official.

Scholz added “the capital adequacy of European banks is robust, thanks to the work [we’ve put in] over the past few years and also thanks to the efforts of the banks themselves”.

Analysts said there was no fundamental reason for the hefty downturn in Deutsche’s shares.

“Investors are worrying about the health of the bank. We are relatively relaxed in view of Deutsche’s robust capital and liquidity positions,” Stuart Graham, of Autonomous Research, said in a report. “We have no concerns about Deutsche’s viability or asset marks. To be crystal clear — Deutsche is NOT the next Credit Suisse.”

Andrew Coombs, an analyst at Citigroup, said investors were trying to make sense of the share price move, adding: “We view this as an irrational market.”

Deutsche went through years of scandal and controversy. But its fortunes improved after a major restructuring programme in which it slashed back its investment bank and ringfenced billions in toxic assets for sale.

Revenues and profits hit 15-year highs in 2022, largely because of its fixed-income trading unit.

However, the bank’s domestic retail lender is barely profitable and its assets management business has suffered outflows after a greenwashing scandal. It has a market capitalisation of just €17 billion and trades at a more than 70 per cent discount to the book value of its assets.

Emmanuel Macron, president of France, suggested speculators were behind the share price falls but that the fundamentals of the banking sector in Europe were solid.

Leaders called for the completion of the EU’s banking union project, which aims to harmonise European rules alongside greater centralisation in regulation, saying the project had “significantly strengthened” the banks following its creation in 2014.

Dutch prime minister Mark Rutte said the underlying fundamentals of the European banking union and its system of oversight were strong, giving “absolute clarity that our European banks are safe”.

- Additional reporting by Alice Hancock and Javier Espinoza

© Financial Times