09/06/2011 02:49 PM

The World from Berlin

Deutsche Bank CEO Preps for 'Long Period of Uncertainty'

Are we really on the eve of a new financial crisis? Deutsche Bank CEO Josef Ackermann thinks so, saying on Monday that he sees parallels to 2008. On Tuesday, German papers weigh in on what his comments could mean for the already unstable financial markets.

Things aren't looking good for the financial sector, according to the CEO of Germany's top bank, Josef Ackermann. In fact, the current situation is reminiscent of the situation just prior to the collapse of the investment bank Lehman Brothers, the Deutsche Bank CEO said during a banking conference in Frankfurt on Monday.

"We should resign ourselves to the fact that the 'new normality' is characterized by volatility and uncertainty," Ackermann said, pointing to bleak economic indicators. "All this reminds one of the autumn of 2008."

Ackermann's comments at the "Banks in Transition" event organized by financial daily Handelsblatt came amid a generally gloomy atmosphere on the capital markets, with investors fearing debt defaults by struggling European Union members. Indeed, on Monday shares in the debt holding banks, among them Ackermann's Deutsche Bank, plummeted towards the two-year low they hit in August. Germany's leading market index, the DAX, also fell to a two-year low. Meanwhile gold prices spikes yet again as investors ran for cover.

Though the situation means banks are pessimistic about profits, Ackermann renewed his criticism of International Monetary Fund President Christine Lagarde's call for European banks to recapitalize. The suggestion is "not helpful," he said. Such a move could threaten Europe's efforts to help struggling euro-zone members by creating the perception that the European Union didn't trust its own approach for keeping the euro alive.

Maintaining the currency union is vital, he said, insisting the price tag would still be less than the "costs of disintegration."

On Tuesday, Germany's newspapers analyze Ackermann's somewhat ominous tone.

The financial daily Handelsblatt writes:

"Josef Ackermann is trying not to appear excessively pessimistic. But fundamentally the head of Deutsche Bank is preparing his industry and politicians for a long phase of uncertainty.... For investors, banks and politicians his comments can only mean one thing: When in doubt, go for safety."

"Political policy has become hostage to the financial markets. For a long time government bonds were the safest investment available on the financial markets. But this pillar is now tottering. Ever fewer states can release risk-free bonds. These securities used to be the yardstick against which the risks of all other securities were measured. But when the yardstick itself becomes uncertain, then nothing else can be measured."

"Politicians must adapt to this uncertainty. Along with this comes strict, none-too-hesitant regulation of the markets. Yet it would be fatal to declare war on 'the markets,' because only a strong entity can win a war. Strong nations don't have problems with the markets, only weak ones do. Thus everything rests on providing countries with increased financial strength -- through saving, but also higher taxes, and a bit of solidarity in the form of aid for other countries, though naturally all in good measure."

Berlin daily Der Tagesspiegel writes:

"When one hears what Josef Ackermann has been saying lately it would be easy to believe that he's switched sides. The banks are the 'servants of the real economy' and the excesses of recent years must be corrected, the Deutsche Bank CEO has said."

"It is only coincidental that bankers and politicians are currently in the same boat. Both sides want to save the euro and the European project. That's logical. Peace and prosperity benefit all citizens, including investors. The bank balance sheets would suffer painfully if even more states fell to the verge of bankruptcy. Just like politicians, Ackermann bears a deep mistrust for the speculative chaos of the markets. If the situation doesn't improve, then Deutsche Bank itself will have to consider a savings package, he said. To prevent this, he suggests the creation of a 'neutral authority' that would rapidly identify and correct ... market imbalances."

"But when an institution like the International Monetary Fund, which is set up to do just that, warns the banks about their own inadequate capital reserves, Ackermann wants to keep quiet. That's how banks will always be able to blackmail countries, by saying 'when you hold us responsible for your financial crisis, we'll go broke.' Ackermann said it himself: The financial industry must create its own rules so that politicians don't hit them with harder laws. But that's why politicians need to move forward and make their ineffective voluntary commitments and promises of improvement superfluous."

The Financial Times Deutschland focuses on Ackermann's warning that banks should look more closely at their own practices, such as absolute return strategies. The paper writes:

"If there is one constant in the current capital market crisis, then it is this: There is no market loss for which the culprits aren't swiftly sought after and found … In this setting Josef Ackermann gave an interesting pointer yesterday … the Deutsche Bank CEO said that absolute return strategies and passive investment strategies like the popular exchange-traded funds (ETFs) meant to strictly avoid losses can also strengthen a negative trend."

"Ackermann is right. For years investor behavior in Germany has had the reliable constant of avoiding losses at any price among both private and institutional investors. No overdeveloped strategy changes the fact that the models for loss limitation still have a strongly procyclical effect: They sell when the markets fall too much."

"It's not just anonymous gamblers who caused the current crisis. We are all part of the markets. Only when the procyclical, hectic capital markets give way again to a strategy of a steady hand will the current crisis end."

-- Kristen Allen


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