Deutsche Bank (DB) has refused government bailout even its shares have tumbled by 81% since its peak on May 11 in the last year.
The Bank still confidences its condition is still rigid and can benefit from the current financial crisis. In the third quarter of this year where the collapse of Lehman has been the biggest catalyst of the global financial meltdown, but Deutsche Bank posted $534 million profit (€414 million).
The bank is trying to reduce lending from its balance sheet and claims its assets are far removed from toxic assets like mortgage backed securities and it still navigates through the crisis very well.
Here is from The New York Times:
To the investors who have pounded Deutsche’s stock, this view is just willful denial that the bank can avoid what befell its peers. To Deutsche executives, who have largely ruled out tapping government bailout funds, it is justified by the bank’s continuing profitability through the maelstrom.
Stefan Krause, Deutsche’s chief financial officer, said in an interview. “And therefore we can only say that so far we have navigated through the crisis very well.”
As a result, Deutsche has — to the immense frustration of some German politicians — turned down a piece of the 500 billion euro bank rescue package that the government approved in October. At a time when banks are being asked to lend more for the sake of the overall economy, Deutsche says it is watching out for its shareholders and insisting that it will do right by doing well.
“The spirit of the package was to help banks that need help,” Mr. Krause said.
Deutsche’s is a high-risk strategy. Though the chief executive, Josef Ackermann, has not categorically ruled out a state recapitalization, turning to public coffers could cost him his job, some analysts said.
“For Deutsche, this would be such a U-turn that there would be a problem with credibility,” said Simon Adamson, a banking analyst at CreditSights in London.
For now, the bank is walking a fine line, trying to shrink its balance sheet by reducing lending while simultaneously assuring the German government and its best clients that the money spigot remains open for well-run businesses.
In a shift from years when it liked to portray itself as an investment banking powerhouse with other businesses attached, Deutsche has taken to highlighting its “stable” businesses — principally retail banking and asset management — as investment banking became virtually synonymous with the financial crisis. The implication is that it needs less capital on hand than a pure investment bank.
Deutsche has also countered that unlike Citigroup or UBS, its assets are far removed from mortgage-backed securities. And to the extent that it dabbled in such so-called toxic waste, it did not accumulate it in the off-the-books vehicles that caused so much woe elsewhere.
“We are not an asset holder,” Mr. Krause said. “We are a trader.”
Deutsche’s strategy highlights the problem various rescue programs were meant to fight. Banks are trying to increase their cash cushion, which can starve even well-run businesses of credit.
Mr. Krause said he had given each banking division targets for reducing lending. Mainly, he said, Deutsche will crank back lending for ventures that are now out of fashion, like leveraged buyouts.
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Sources :
- The New York Times: Deutsche Rejects a Rescue, Even as Its Shares Tumble, December 1, 2008
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