Olaf Schultz denies concerns about Deutsche Bank

Olaf Scholz dismissed comparisons between Deutsche Bank and Credit Suisse as a plunge in the German bank’s shares led to another day of turmoil in the banking sector.

Speaking after Deutsche shares plunged 14 percent, the German chancellor sought to boost confidence in the country’s largest bank, with investors still jittery after the forced takeover of Credit Suisse last weekend.

“Deutsche Bank has fundamentally modernized and reorganized its business and is a very profitable bank,” Schultz said at a summit in Brussels after being asked if the lender was the new Credit Suisse. “There is no reason to worry about that.”

His comments came as part of a concerted effort by European leaders to calm market nerves as stocks in the region’s largest banks fell.

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

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

Shares in both Germany’s Commerzbank and France’s Société Générale fell about 5 percent in early afternoon trading, leaving the Stoxx 600 Banking Index weaker by 3.8 percent. Deutsche traded down 10 per cent.

However, analysts said on Friday that there was no fundamental reason for the double plunge in Deutsche shares.

Investors are concerned about the health of the bank. “We are relatively comfortable given Deutsche’s strong capital and liquidity positions,” Stuart Graham of Autonomous Research said in a report. We have no concerns about the viability of Deutsche or its asset labels. To be absolutely clear – Deutsche is not the next Credit Suisse bank.”

Andrew Combs, an analyst with Citigroup, added that investors were trying to understand the stock price movement, adding, “We look at this as an irrational market.”

Deutsche has gone through years of scandal and controversy. But its fortunes improved after a major restructuring program in which it downsized the investment bank and locked up billions in toxic assets for sale.

Revenue and earnings reached a 15-year high in 2022, largely due to the fixed-income trading unit.

However, the bank’s local retail lender is barely profitable, and its asset management business has suffered from outflows after the greenwashing scandal. It has a market capitalization of just €17 billion and is trading at a discount of more than 70 percent to the book value of its assets.

French President Emmanuel Macron indicated that speculators were behind the fall in stock prices, but that the fundamentals of the banking sector in Europe are strong.

The leaders called for the completion of the EU Banking Union project, which aims to harmonize European rules along with greater centralization of regulation, saying the project had “significantly strengthened” banks after its creation in 2014.

Dutch Prime Minister Mark Rutte said the fundamentals of the European banking union and its supervisory regime are strong, giving “absolute clarity that our European banks are safe”.

Additional reporting by Alice Hancock and Javier Espinosa