International Monetary Fund (IMF) chief Christine Lagarde gave Deutsche Bank some tough advice on Thursday, saying Germany's biggest lender needed to reform its business model and rapidly reach a deal with US regulators over a potentially huge fine.
A senior European official tried to shore up confidence in the continent's banking system, saying it was working well overall, while sources said Germany's financial watchdog had found no evidence so far that Deutsche violated money laundering rules in Russia, possibly relieving one of its many headaches.
Meanwhile, the chief executives of several German blue-chip companies have discussed Deutsche's problems and are ready to offer a capital injection if needed to shore up the bank, newspaper Handelsblatt reported on Thursday.
However, Lagarde did not mince her words about the problems of Deutsch, which the IMF has identified as a bigger potential risk to the financial system than any other global bank, in an era of ultra-low interest rates.
"Deutsche Bank, like many other banks, has to look at its business model," she told Bloomberg Television during the IMF and World Bank's autumn meetings in Washington.
"It has to look at its long-term profitability - given the lower-bound interest rates we have around the world and probably for longer than many expect - and decide what size it wants to have and how it wants to strengthen its whole balance sheet," she said.
Germany's flagship bank is under heavy pressure as it fights a penalty of up to $14 billion that the US Department of Justice (DoJ) plans to impose for misselling mortgage securities, its latest setback that sent its shares to a record low last week and worried clients.
Deutsche is in the middle of a deep overhaul that includes slashing a workforce of around 100,000, revamping information technology and selling non-core assets. It struck another deal on Thursday with its works council to cut a further 1,000 staff in Germany, bringing total job losses there to 4,000.
Lagarde acknowledged that Deutsche was selling assets but underlined the importance of reaching an out-of-court settlement with the DoJ.
"A bad settlement is always better than a good trial," she said, adding that Deutsche was "not in a trial mode".
"A settlement would... deliver some certainty as to what weight the bank will have to carry and whether it matches with its provisions or not. So the sooner, the better," she said.
Deutsche has already spent 12 billion euros ($13.4 billion) on litigation since 2012, and says it has put aside 5.5 billion euros for its expected legal bill. This is far less than the top end of a possible DoJ fine, although other banks have negotiated their penalties down to much smaller sums and Deutsche hopes to do the same.
In preparation for a higher-than-expected legal bill, Deutsche has begun speaking with Wall Street firms about its options to raise capital. Senior advisers at the firms are offering to help underwrite a stock sale to raise about 5 billion euros, according to a Bloomberg report.
Deutsche Bank declined to comment on the report. Nevertheless, uncertainty remains over the provisions amount. "We reckon that ... read full story
