EUROPE’S SOVEREIGN debt crisis will stunt bank profit for years and could kill off the weakest, Deutsche Bank chief executive Josef Ackermann told industry bosses, amid intense scrutiny of the sector’s finances.
“Prospects for the financial sector overall ... are rather limited,” the chief executive of Germany’s top bank said yesterday.
“The outlook for the future growth of revenues is limited by both the current situation and structurally,” he added
Mr Ackermann was speaking at Frankfurt’s annual Banks in Transition conference against a backdrop of gloom in the capital markets, where fears some euro zone countries could default on their debts have made investors fearful.
Many European banks could go under if they had to accept a “haircut” at current market valuations on their entire sovereign debt holdings, instead of the 21 per cent writedown that has been proposed on Greek sovereign debt, Mr Ackermann warned.
“It’s stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels,” he said.
Fears about how the crisis will play out have struck the inter-bank lending market and made it difficult for banks to raise even long-term financing, said Ulrich Schröder, head of German government-backed KFW .
“The situation for banks is more dramatic than it was in 2008,” he said in a panel discussion at the conference. “In 2008, governments were still able to support their banks. Now this is simply no longer possible,” Mr Schröder said, adding that he knows of no bank that is able to issue a seven- or eight-year bond in the current environment.
Bank shares tumbled further on yesterday with the STOXX Europe 600 banking index closing down 6 per cent to its lowest level in 29 months, after tumbling by a third in value since the beginning of the year.
“The chances of a near-term recovery remain slim as euro zone debt concerns, structural reform and a [US] lawsuit for allegedly mis-selling mortgage debt all weigh heavy on the sector,” Manoj Ladwa, a senior trader at ETX Capital, said.
Deutsche stock fell almost 9 per cent, with shares in Swiss rival Credit Suisse down 8 per cent and Royal Bank of Scotland shares slumping 12 per cent.
A US regulator sued 17 large banks and financial institutions on Friday over losses on about $200 billion of subprime bonds, adding to the sector’s woes.
Credit Suisse chairman Urs Rohner said the new regulatory environment had curtailed the risky activities for banks, but would also result in lower profits. – (Reuters)
