Deutsche Bank is one of the ten most vulnerable financial institutions in Europe

Deutsche Bank is one of the ten most vulnerable financial institutions in Europe

economy

stress test Deutsche Bank is one of the ten most vulnerable financial institutions in Europe

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Anne Kunz

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German and British banks perform poorly in the stress test

German and British banks perform poorly in the recent stress test of the European Banking Authority EBA. Among the institutions with the worst ranking is the Deutsche Bank.

German and British banks would face the greatest difficulties in Europe in the event of a severe economic crisis.

  • This is the result of the recent stress test of the European Banking Authority EBA.
  • The worst of the German institutes cut off the Hannoveraner Landesbank Nord LB.

Dhe Deutsche Bank once again got a damper on the European banking supervisor EBA's stress test. So their capital, which is supposed to protect them from crises, has shrunk significantly during the stress test. According to the test, it is one of the ten most vulnerable financial institutions in Europe. The institute's capital ratio dropped from around 14 percent to 8.1 percent, which corresponds to an extremely sharp fall in the event of a crisis.

The other German banks also lost significantly compared to institutions from other countries. This was mainly due to their low profitability.

The worst of the German institutes cut off the Hannoveraner Landesbank Nord LB. In the worst case, it can only count on a capital ceiling of just over seven percent. There were only three European houses that had less capital after the crisis than they did: the British bank Barclays, the Italian bank Banco BPM and the British Lloyds.

Two different catastrophic scenarios were tested, including a severe recession with a high unemployment rate, rising interest rates, rising inflation and falling house prices. In addition, a collapse in equity and bond prices as well as a strong currency collapse were experienced. Crucial to a bank's resilience was how much its so-called hard core capital developed in the simulated crises.

Experts see tougher examination

In total, 48 institutes from 15 EU countries and Norway took part in the stress test in recent months. The 37 banks from the euro zone alone, who had to face up to the overseers, account for around 70 percent of the balance sheet total of all houses in the monetary union. In addition to the two major banks, Deutsche Bank and Commerzbank, the four Landesbanken BayernLB, LBBW, Helaba and NordLB as well as the North Rhine-Westphalian development bank NRW-Bank and DZ Bank were involved.

Of the 48 institutions audited, none of the institutions fell under a capital ratio of 5.5 percent in the crisis scenario: Barclays reached 6.37 percent, BPM came to 6.67 percent.

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According to experts, this year's stress test is much harder than the test two years ago. In addition, he also had some peculiarities that made it especially difficult for the local institutes. For Germany and its banks, an economic shock would be particularly bad. Thus, the Federal Republic is a very open economy, which depends heavily on foreign demand, which increased the impact of the economic crisis.

In addition, this year's stress test was designed so that the effect on government bonds, in which many institutions are heavily invested, was rather mild. This benefited mainly banks from the periphery. If the prices of bonds from heavily indebted countries fell sharply during a crisis, it would have to have a major impact on the institutions as well. However, this was not provided for in the stress test.

"We are not profitable enough yet"

Also, the assumption that in times of crisis, interest payments from non-performing loans flow, came mainly from Italian banks with high levels of loans, which are served only irregularly or insufficiently, very accommodating. The German institutes were hardly able to profit from this.

On the contrary: the fact that their demands are normally of comparatively high quality meant that in the catastrophic scenario the crash was all the more violent. In addition, the banks were barely able to benefit from the rising interest rates, as German banks have mainly spent long-term, fixed-income loans. But the biggest problem of the local institutions is homemade: they earn far too little compared to their European competitors.

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This makes them particularly vulnerable in crises, as they can not compensate for losses through income. This is especially true of Deutsche Bank. Chief Financial Officer James von Moltke said: "The stress test shows that our risk profile is absolutely solid, but we are not yet profitable enough." That's exactly what the bank is working on, says the manager.

Von Moltke does not expect that the overseers of the money house will demand in the future to reserve even more capital for the crisis case. The fitness check in the case of Deutsche Bank also much positive has not been taken into account or many already worked out problems in the test was included, criticized by Moltke.

"The balance sheets of Deutsche Bank are a tragedy"

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Deutsche Bank reports pre-tax profit of € 506 million in the third quarter, compared to € 933 million in the same period of the previous year. Dietmar Deffner in conversation with capital market strategist Stefan Riße.

Source: WELT / Dietmar Deffner

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