The banking sector has had a turbulent few years, with a number of large banking companies experiencing financial difficulties, such as the collapse of Northern Rock in the UK and the infamous bailout of Greece by its fellow eurozone countries. The latest institution to be effected by the global financial troubles is Germany’s largest bank, Deutsch Bank. Banking fears have been on the rise as the company continues to experience losses in its operations and the potential for bankruptcy.
What is Deutsche Bank?
Deutsche Bank is the largest bank in Germany, with a market capitalization of €27 billion and assets worth €1.78 trillion. It is a major player in global capital markets, providing products such as private banking, financing, M&A, asset management and retail banking. The bank also has significant interests in international processing and payment services, such as payments and foreign exchange transactions.
Recent Struggles of Deutsche Bank
In recent times, Deutsche Bank has been in the headlines for all the wrong reasons. It has seen its share price slump by more than half over the past year and it has reported losses of €6.8 billion in 2018. It has also been subject to multiple fines, including a €725 million penalty imposed by US regulators for its alleged involvement in the Libor interest rates scandal.
Furthermore, the lender’s operations and subsidiaries have come under attack from investors and regulators alike. For instance, British regulators have requested that the bank transfers operations from its subsidiary located in London to another part of the world.
The cause of such difficulties is widely reported to be mismanagement and uncertainty surrounding the future of the European economy. The bank was alleged to have made huge bets on certain investments, such as corporate bonds and real estate properties, which have resulted in a string of losses.
Consequences of Deutsche Bank’s Struggles
The struggles of Deutsche Bank have had a ripple effect that extends to individuals, businesses and the wider economy. Its dwindling share price could mean that investors who own shares in the company may suffer losses.
At a domestic level, the bank’s troubles could affect smaller businesses and put a brake on job growth in Germany. The reality is that Deutsche Bank’s woes could dent the country’s GDP growth and potentially threaten the stability of the domestic banking sector.
Repercussions can also be felt on a global scale, as the loss of confidence in Deutsche Bank may trigger a wider contagion risk. The reality is that many of the bank’s derivatives and products are held by financial institutions around the world. Many large central banks also have exposure to Deutsche Bank’s balance sheet, meaning that any weakening of the lender’s finances could cause panic across the global markets.
Potential Solutions for Deutsch Bank
As the situation stands, Deutsch Bank needs to make drastic changes in order to survive. So what options does it have?
Firstly, the bank needs to raise capital. This may involve selling off its non-core operations, such as its equities and asset management business, or by taking on debt that can help to bolster its capital buffers.
Another area of focus needs to be cost savings and efficiency gains. Deutsche Bank has been taking steps to reduce costs by making significant changes to its operations. This includes cutting over 6,000 jobs and slashing bonuses by 26% over the past two years.
Finally, the bank needs to focus on improving its credit risk management practices. It should focus on tightly controlling its exposure to credit risks and more closely monitoring its investments.
Deutsche Bank is a major global player in the banking sector, with a market capitalization of €27 billion and assets worth €1.78 trillion.It is facing a turbulent time, with its share price having fallen by more than half over the past year, and losses of €6.8 billion being reported in 2018. In order for it to survive, it needs to raise capital, reduce costs and enhance its risk management practices. It remains to be seen whether the banking giant can turn its fortunes around, but one thing is for certain: banking fears have certainly spread to Germany’s biggest lender.
