Deutsche’s Ackermann warns peripheral debt could bring banks down

The chief executive of Germany’s largest bank has urged Europe’s policymakers to avert a re-run of the last financial crisis, as conditions remind him of late 2008, when three major US banks either collapsed or were merged to rescue them.

Deutsche Bank’s Josef Ackermann said those in power in Europe must act quickly to stave off a similar fate in Europe – but he was not confident they would, or could.

“Investors are not only asking themselves whether those responsible can summon the necessary willpower to overcome this crisis, but increasingly also whether enough time remains and whether they have the needed resources available,” he told a conference in Frankfurt.

He said it was “an open secret” that “numerous European banks would not survive” if they had to attach market prices of sovereign debt held on their books.

He said “distrust of the financial markets” had spread to Europe’s banks due to their exposures to beleaguered sovereigns.

Such exposure has also worried bank sector analysts at Morgan Stanley, which noted in mid-July there was an 80% correlation of European banks’ stock prices and peripheral sovereign spreads.

A Bloomberg index of European financials plunged 5.6% yesterday to its lowest level since early 2009, as investors sent yields higher on bonds of Greece, Portugal, Spain and Italy. The Eurostoxx Europe 600 index registered its sharpest one-day fall for over two years.

Ackermann’s words echoed those of Jim O’Neill, chairman of Goldman Sachs Asset Management, who yesterday called on Berlin to accept issuing of Eurobonds; for Italian politicians to show more backbone on austerity reform; and for Europe’s Central Bank to “move towards an interest rate cut”.

O’Neill conceded, however, German chancellor Angela Merkel faced a difficult environment to push through measures.

She will soon face the results of a regional election in Mecklenburg‐Western Pomerania, and Germany’s Constitutional Court potentially demanding conditions be put on Germany’s public financial support for the eurozone’s support package, which already comprises about 27% of the €440bn central eurozone rescue fund.

In London, Rupert Caldecott, chief investment officer of Dalton Strategic Partnership, said: “The path ahead in Europe is still fraught with difficulties, and it is now clear that there will be much less help than hoped for from the economic background.”

Senior staff at European financial companies, addressing the same event Ackermann attended, spoke of banks “not being out of the danger zone”; of Europe standing “at a crucial moment”; and the eurozone project being “at stake”.

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