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News by Fred Alan Medforth
Friday, January 29, 2016
EU on brink: Germany's biggest bank records shock losses risking economic RUIN of Eurozone
GERMANY could force the European Union into ruin after Deutsche Bank's share price plunged following the country's biggest lender's first annual loss since the financial crisis.The German lender posted a full year loss of £5.1 billion (€6.8bn) on Thursday - higher than the expected €6.7bn million.
With losses of €2.1bn in the fourth quarter of 2015-16, fears of the entire eurozone toppling are becoming an increasing reality.
Germany, which has a GDP of $3.4bn is one of the six largest economies in the world and the fate of the eurozone relies heavily on its strong economy.
But it is facing the most difficult start to a year in recent memory. Its own industrial production growth has slipped to ZERO per cent and customer confidence has plummeted in a catalogue of disasters for Chancellor Angela Merkel.Much of Deutsche's losses have been down to litigation charges, racking up €1.2bn in the last quarter - which could still increase.
This year's litigation charges have reached €5.2bn, compared with €2bn the year before.
A reduction in the bank's corporate banking and securities division has been blamed on revenues in the fourth quarter falling 15 per cent year on year to €6.6bn.
Mark to market losses in Deutsche's non-core operating unit were also blamed.The bank took a hit in early trading as its share price dropped 1.5 per cent, despite investors being pre-warned it would be bad news following share prices falling drastically over the last year.
Deutsche Bank shares have declined 24 percent since the beginning of the year. The stock has declined 36 percent in the last 12 months.
Deutsche's fall in grace adds to Germany's seemingly never-ending woes this year, with the country's industrial production growth slipping to zero per cent last week and customer confidence plummeting.As the biggest economy in the eurozone, with a GDP of $3.4bn, experts have warned if its economy - along with second biggest eurozone economy France - crashes it would trigger a domino effect which would bring the entire currency crashing down causing a detrimental ripple effect on the global economy.
Last week, under pressure German chancellor Angela Merkel admitted Germany may fail to balance its books this year as it contends with the costs of letting in more than a million refugees in a bid to relieve the current crisis across Europe.
There is concern the eurozone is over-reliant on the economy of the relative powerhouse of Germany.
Andy Baldwin, EY’s Global Financial Services Leader, says: “The apparent reliance of the Eurozone on the German economy, bolstered by its strong banking system, is more pronounced than many would expect.
"The short term health of economies including France, Italy and Spain, is dependent on the continued growth of the German economy – a major component of which is the further strengthening of its banking sector."Investors claims France's economy, which recently entered a 'state of emergency' could act as a drag on the overall health of Europe.
Only two per cent of investors claim that French banks have the best prospects for growth.
Mr Baldwin added: "It is clear that for a sustained return to economic health in Europe, growth needs to be more evenly spread across the continent."
In a bid to patch up some of Deutsche Bank's central issues, the lender is now restructuring.
At the beginning of the week it revealed bonuses could be slashed by as much as 30 per cent for staff, including investment bankers.
And it warned up to 1,000 jobs in London could be at risk if it scaled back its investment banking sector.Co-chief executive, John Cryan, said: "In 2015 we made considerable progress on the implementation of our strategy.
"The much-needed decisions we took in the second half of the year contributed to a net loss for the fourth quarter and full year."He added: "We are focused on 2016 and continue to work hard to clear up our legacy issues. Restructuring work and investment in our platform will continue throughout the year.
"We know that periods of restructuring can be challenging. However, I'm confident that by continuing to implement our strategy in a disciplined manner, we can and will transform Deutsche Bank into a stronger, more efficient and better run institution."
Mr Cryan is set to take over entirely in May, when investors are expecting significant changes to ensure the once almighty bank is back on course. express