Fund managers warn Deutsche could be tip of banking iceberg

Monetary easing policy pursued by the European Central Bank has taken eurozone interest rates to record lows, eating into banks’ profits and weakening their share price.

Guy de Blonay, specialist financial fund manager at Jupiter Fund Management, said the ECB’s bond-buying programme had made it “extremely difficult for banks like Deutsche to make money”.

Hartwig Kos, co-head of multi-asset and a portfolio manager at Syz Asset Management, said: “The ECB’s low interest rate policy has clearly been detrimental for the profitability of European banks, not only for the periphery but also for German banks. Deutsche Bank is now the first victim of this, and there are potentially many others.

“We believe that the German government will eventually recapitalise and restructure Deutsche Bank and the ECB will change their monetary policy mix in such way to support the European banking system. However, as witnessed many times before in Europe, it is likely to get worse before it gets better.”

De Blonay, who does not invest in Deutsche Bank, said it was now critical for the bank to communicate its strategy to the market, to ensure that investor confidence did not entirely disappear.

He said: “That’s the worst-case scenario [poor communication]. Clients stop using Deutsche and therefore this has an impact on their revenue or earnings streams which will certainly put them into trouble because the regulatory capital requirement will be even more difficult to reach.”

He insisted that the bank’s fundamentals did not warrant the current turmoil, adding it would be unfair to compare its plight to Lehman Brothers.

Gildas Surry, senior research analyst at Axiom Alternative Investments, said: “There is an element of an axe to grind. Deutsche has had a fairly poor reputation with a fairly aggressive culture, especially coming from the previous management.”

Earlier worries about how the withdrawal of hedge funds’ prime broker business from Deutsche Bank would affect the overall stability also appear to have been exaggerated, according to one prime broker and one hedge fund.

They said that the biggest risk was that panic among clients would lead to the withdrawal of more business, and the fall of Deutsche Bank becoming a self-fulfilling prophecy.

Additional reporting by Stefanie Eschenbacher

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