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DEUTSCHE BANK STOCK PRICE CRASH

FINANCE

Five reasons why Germany is worried about Deutsche Bank

Since the beginning of 2016, Deutsche Bank – Germany's biggest lender – has lost 40 percent of its value on the stock market. What's got investors so spooked?

Five reasons why Germany is worried about Deutsche Bank
File photo: DPA

1. It's shrinking after two decades of expansion

Deutsche grew quickly over the past 20 years as it sought to challenge some of the world's biggest investment banks – mostly in the US.

But that strategy hasn't worked, and last June its former co-CEOs announced they were stepping down.

Deutsche Bank's new CEO John Cryan. Photo: DPA

New CEO John Cryan, a Brit with a reputation for turning around struggling businesses, started in July.

By October , faced with the bank's biggest-ever quarterly loss of €6.01 billion, he was already announcing thousands of job cuts, hundreds of branch closures, and withdrawal from 10 countries.

2. The future doesn't look bright

Many investors feel unsure about how exactly Deutsche plans to make money in future – and the tumbling share price reflects that uncertainty.

Cryan's move to shrink the bank has come at the same time as market upsets caused by low oil prices, fears for the Chinese economy, and continuing problems in the Eurozone.

That's all bad news for Deutsche Bank's investment arm – which was Cryan's big hope for bringing in cash from now on.

3. Everyone is protesting too much

Senior figures at Deutsche and even German Finance Minister Wolfgang Schäuble have all tried to reassure investors, workers and account holders about the future of the bank in recent days.

The bank is “absolutely rock-solid,” Cryan said in a statement on Tuesday, while Schäuble told Bloomberg he had “no concerns” about the banking giant.

German Finance Minister Wolfgang Schäuble. Photo: DPA

But the flood of insistence that everything is fine seems to be having the opposite effect to what they hoped.

The price of insurance against Deutsche failing to pay its debts – so-called “Credit Default Swaps” – has doubled in recent days.

4. It's hitting Germany as a whole

Questions over the future of Deutsche Bank mean questions over the future of Germany.

The likelihood of the German government defaulting on its debts spiked on Tuesday to its highest levels since 2014 (although it's still very low, at 1.7 percent).

That's despite new rules introduced since the financial crisis which require banks to have more money on hand, meaning that theoretically at least Berlin should not be left on the hook if Deutsche's debts are called in.

For the world's fourth-biggest economy, a loss-making top bank is a liability – especially when US rivals like JP Morgan are valued ten times higher on the stock markets and are back to making healthy profits.

5. No-one wants to buy a struggling Deutsche

One route out of Deutsche Bank's woes might be for a wealthy new owner to take it over and put it through the arduous restructuring it needs.

But few financial institutions have the patience and the deep pockets that would be needed to get the floundering giant back on track.

It will take quite a lot of these to get Deutsche Bank back on track. Photo: DPA

The same new rules that make it less likely for banks to default also make them less profitable – and therefore less attractive to buyers.

That's even the case when the bank's current stock market value is just 35 percent of the value of the assets on its books.

“I don't think anyone wants to take over an investment bank at the moment,” one large shareholder in Deutsche Bank told Die Welt on Wednesday.

with DPA

SEE ALSO: Deutsche Bank suffers record loss in third quarter

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BANKING

German online bank N26 shutters US service

German online bank N26 said Thursday it was closing its operation in the United States next year, as regulators in Europe place the "fintech" start-up under increased scrutiny.

The N26 logo on a bank card.
The N26 logo on a bank card. Photo: picture alliance/dpa | Christophe Gateau

N26’s 500,000 customers in the US would be able to use their services until January 11th, 2022, the bank said in a statement, after which it would cease to operate in a market it first entered in 2019.

Instead the Berlin-based operation would “sharpen its focus on its European business”, where it already operates in 24 countries and is exploring expansion into more eastern European markets.

N26 said it would also look to launch new “investment products in the coming year” to sit along side its current account service.

Founded in 2013, N26 offers free, online-only banking services to around seven million clients and is one of Germany’s most high-profile financial technology or “fintech” firms.

In October, the bank raised $900 million from private investors, and announced a plan to hire a further 1,000 employees to reinforce its product development, technology and cybersecurity teams.

READ ALSO: German online bank N26 to create 1,000 jobs

At home, N26 has been in the crosshairs of the German banking watchdog BaFin since 2018 after a local news media investigation found that it was possible to open account with forged IDs.

Earlier in the month, the regulator said it was upping its oversight operations at N26, appointing a special representative to monitor the bank’s progress towards solving issues in “risk management with regard to IT and outsourcing” identified by BaFin.

The regulator also limited the number of new customers N26 could take on to 50,000 a month until the shortcomings were addressed.

N26 was already being monitored by BaFin over failures in the start-up’s anti-money laundering system.

BaFin issued N26 with a 4.25-million-euro ($4.8-million) penalty earlier this year in connection with around 50 “suspicious transactions” the bank failed to report promptly enough.

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