According to the International Monetary Fund, the Deutsche Bank is the riskiest bank in the world and it seems that they are not the only ones to think so. Even the shareholders feel that the Deutsche Bank is in a rather risky position at the moment, a sentiment clearly reflected by the fact that their share prices have fallen by over 70% in the last 1 year.
Deutsche Bank is iconic, to say the least. There are very few financial institutions in Europe which are associated with miraculous results. The Deutsche Bank is one of them. In fact, after the Wold War II, they worked hand in hand with Bundesbank to provide a solid economic foundation free from inflation in Germany. This led to a great overall growth for the institution, till, in the 90s, when it went global. Ironically, that is exactly what has led to this predicament.
What is the Problem?
Let’s talk about figures. By the estimation of financial institutions and the rules of banking, the Deutsche Bank seems to be very solid. In fact, if you look at its capital ratio (the money the bank has against the assets, in relation to the risk) the figures stand at 11%. This is above the minimum of 7% and is on par with some of the other major players in the market, like the Barclays. The problem, however, lies with the future security.
Unlike other major financial institutions, the Deutsche Bank does not have a solid footing in the credit card or the big retail banking sector. These are the foundations for a stable financial growth, and this is exactly what has all the bigwigs in the financial world worried. In fact, given €20 billion you can directly buy the bank for yourself. While this might sound like a lot to an average person, in the world of financial heavyweights, it does not amount to much. Considering the kind of influence the Deutsche Bank has on the world economy, these figures have caused a lot of headaches already. In fact, if the Deutsche Bank fails, it will make the world economy come crashing down with it.
Compounding the Problem
The Eurozone is already facing a crisis in terms of economic turmoil following the wake of the Brexit vote. Although the UK is the only participant which has broken away from the Eurozone, it has shaken up the whole region. Besides investors losing faith in the financial situation, the whole arrangement has put an undue pressure on the rest of the Eurozone members. Despite Putin’s reassurance to the contrary, a smaller Eurozone may not be the best of measures, at least for the moment. According to Trusted Binary Reviews, one of the best sites for trading, even the European Central bank was forced to admit that economic problems are arising. Negative monetary rates and loose policies might help in the short-term, but the long-term effect for the whole of Europe might be in jeopardy. In fact, experts are estimating that following the 1.3% projected inflation rate, the USD to Euro parity of 1:1 might be lost for the first time because of the pressure being put forth. Since the Deutsche Bank is one of the major participants in the Eurozone, the weak growth rate in Germany may compound this further.
The Government’s Stand
While the general public might not have much of faith in the Deutsche Bank, it seems that the German Government is behind them all the way. This was further ratified by the German Finance Minister Wolfgang Schaeuble who went on to say that the foundation for the Deutsche Bank is “rock solid”. While this might be reassuring, examples from the recent past (the Italian Government) has shown that this might have dire impacts on the overall financial health. However, it is not only the German government which is trying to save the biggest economic institution in the country. The Deutsche Bank chief executive, John Cryan is also a step in the positive direction. The highly pragmatic financial expert, while ignoring some sectors of banking in favor of others, is certainly doing something right. This is evidenced by the fact that the overall debt for the bank seems to have reduced since he came to power along with directed growth. Experts have said that if the thing continues on in the same direction, the bank has no worries in the future regarding its economic footing.
The main problem is that although the Deutsche Bank has invested in trillions of dollars’ worth of investment in Wall Street and is backed by one of the most influential governments in the world, it seems to be displaying the same trend as was exhibited by Citigroup back in 2008. Even though the US Government was highly invested in them, they still crashed, bringing down the global economy and Wall Street with them. After that fiasco, the financial experts are more prone to maintaining a guarded approach to investments. This loss in confidence is compounded by the fact that the US unit of the Deutsche Bank failed the Federal Reserve stress test. Moreover, as IMF noted in its June report titled “Financial System Stability”, the spillover of the effect of the Deutsche Bank crashing would be felt in UK, France, and the US besides Germany. Since all of them are major global economic players, the whole world might be in crisis.
While the Deutsche bank might be the biggest financial institution in Germany, it is unquestionable that it is now going through a pronounced slump. In fact, concerns were raised when it was seen that another major German bank, the Commerzbank was forced to cut a fifth of its workforce of 9000 employees. With a whole lot of problems and a great number of variables in the field including Brexit, chances of Trump becoming the next US president, prolonged European political instability, and negative interest rates, among other things, if you are looking to invest, you should explore more stable options for the moment.