Rising delinquencies among consumer and corporate borrowers are the “next wave” of the financial crisis and may affect banks that have avoided losses so far, said Deutsche Bank AG Chief Executive Officer Josef Ackermann.
“This crisis has consisted of a series of earthquakes, with changing epicenters,” Ackermann said late yesterday at an event in Zurich. “Bad loans are the next wave. Banks that have fared relatively well so far will also be affected by this.”
Deutsche Bank, Germany’s biggest lender, said this week it set aside 1 billion euros ($1.4 billion) for risky loans in the second quarter. The seven-fold increase in provisions and below- forecast revenue from trading sent the Frankfurt-based bank’s shares to the biggest decline in four months on July 28.
“We were struck by the 44 percent increase in problem loans in the quarter,” Morgan Stanley analysts Huw van Steenis and Hubert Lam said in a note today, cutting their rating on Deutsche Bank shares to “equal-weight” from “overweight.”
Deutsche Bank fell 1.30 euros, or 2.8 percent, to 45.39 euros in Frankfurt trading, making it the worst performer on the 63-company Bloomberg Europe Banks and Financial Services Index over the past five days with an 11 percent drop.
‘Crisis Not Over’
“The crisis is not over,” Ackermann said. “When one looks at the developments of global economic growth, then it can be expected that starting in the second half of this year we slowly move into the positive territory. But we’re still moving on a low level.”
Banks that were forced to take government aid and are now encouraged to increase domestic lending may be more in danger from rising loan defaults than companies that can expand internationally and diversify risks, Ackermann said.
Deutsche Bank “intentionally” reduced its balance sheet and risk-taking this year, he said.
“We were disciplined in our considerations about what risks which should take,” Ackermann said. “If we had played it out to the full extent, we could have earned significantly more.”
Morgan Stanley analysts lowered their earnings per share estimate for Deutsche Bank this year to 5.88 euros from 6.01 euros because of “increased provisioning in the investment bank and the German retail business and reduced fee income revenues.”
The Swiss-born Ackermann, whose contract extension until 2013 was approved by Deutsche Bank’s supervisory board this week, said German lawmakers had urged him to stay.
Former German Chancellor Gerhard Schroeder “told me already three years ago, ‘Mr. Ackermann you definitely have to stay, we need you,’” he said.
