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Germany’s Gov’t Denies Supporting Troubled Deutsche Bank

deutsche bankAs the global banking major Deutsche Bank increasingly comes under pressure with the U.S. seeking a multibillion dollar fine for malpractice there has been growing debate within Germany as to whether Chancellor Angela Merkel will intervene in an election year to save the bank. The fine starts at $14 billion and could go higher.

The Merkel administration has clarified that as of now there is no proposal to bailout Deutsche Bank as it tries to handle the crippling fine and its fallout. In a statement, Hans Michelbach, a senior leader of Merkel’s Christian Democrat-led bloc said,

It’s unimaginable that we would help Deutsche Bank with taxpayers’ money. It would lead to a public outcry. The political establishment would lose credibility if the government jumped in.

Merkel has a complicated history with the bank. An ill-advised birthday reception hosted by her in the early days of the 2008 financial crisis for Deutsche Bank’s then-chief executive Josef Ackermann resulted in widespread criticism.Later there have been public disagreements on the issue of bailouts and handling of the sovereign-debt crisis. After years of policy crackdown on financial institutions, experts say that the German government cannot take any steps that might indicate a bailout.


Joerg Rocholl, head of the ESMT business school in Berlin pointed out that any money given to the financial industry would be viewed as an example of what the people have complained of which are ‘profits are always privatized but losses are socialized’. In case of sovereign debt crises, Merkel has however acted for euro stability. Despite severe criticism she supported the Greek bailout, saying that it was a battle between the markets and politicians responsible for their public.

Several market analysts have noted that Deutsche Bank is too important to be abandoned if it’s in trouble. Andreas Utermann, chief investment officer at Allianz Global Investors has said that he doesn’t feel the government’s current response to the Deutsche Bank crisis is convincing, as the Bank is highly significant for Germany’s economy. Over 55 percent of the bank’s 101,000 employees are located in Germany and much of the bank’s consumer credit exposure of 189 billion euros is in Germany

Further complicating the issue, the European Union law has implemented several safeguards to prevent the usage of tax payers’ money for bailing out financial institutions, preventing any government aid to solvent banks. The law permits only supporting any shortfall in capital highlighted in an asset-quality review or a stress test.

Deutsche Bank’s weakening capital and escalating legal costs is however concerning to Germany’s lawmakers. Social Democratic legislators purportedly met last week to discuss the issue, but Merkel’s chief spokesman declined to comment if Merkel and the bank’s CEO Josh Cryan have specifically met and discussed the issue.

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