Are German Banks Facing a Crisis?

German Bank Crisis

If you’re state-side, your economy is reopening. You’re likely not dealing with the pandemic like German citizens are today. Restrictions and bans still exist. However, they do not apply equally to all companies. While some industries are struggling for bare survival, others are raking in record profits. As in most crises, there are winners and losers this time around.

After the World Health Organization (WHO) declared the COVID-19 outbreak a global pandemic in March 2020, the German stock market plummeted from its all-time high of nearly 13,800 points in February 2020 to 8,500 points. Public life came to a standstill. Numerous bank branches closed. Data from Statista show that the number of bank branches fell to the level of the 1950s. Bank branches were the first losers of the crisis.

Is a Banking Crisis Possible?

Experts also feared that a banking crisis could follow the Corona crisis. Due to the weaker economy, more companies would go bankrupt. This would cause more loans to default and also endanger the banks as lenders. Therefore, it is still unclear whether we face a banking crisis.

The suspension of the obligation to file for insolvency and the generous support programs mean that struggling companies may survive longer. Insolvencies could be delayed and later sweep the banking landscape like a tsunami. How the situation will develop remains to be seen, but one thing is already evident. In the banking sector, there is currently one big winner. Let’s look at Deutsche Bank.

Amid the crisis, the German industry leader posted its best first quarter in seven years. It had €1 billion in after-tax profits in the period from January to March 2021.

CEO Christian Sewing feels confirmed that he took a right strategic path in 2018. However, not everyone sees it that way. Instead, critics complain that the profits come mainly from investment banking.

Deutsche Bank with dream result, but…

A large part of the profit came from trading in bonds and currencies. In the capital markets business, the bank was able to profit from the volatility on the markets. At the same time, Sewing had announced that he would strengthen the private and corporate customer business and reduce investment banking.

Deutsche Bank has been criticized time and again for its investment banking activities. Numerous scandals caused a loss of reputation. Billions in fines not only reduced profits but also drove Deutsche Bank to the brink of ruin.

“However, our good results were not only received positively by the public. Our profits were only due to the investment bank, they said, and so the “old Deutsche Bank” was back. I in no way share these assertions,” tagesschau.de quoted Sewing’s speech. After all, the bank had also been successful in other business areas and had never intended to withdraw entirely from investment banking anyway.

The gambling continues, and Deutsche Bank’s controversial billion-dollar bonus pot has also remained. Dieter Hein, an analyst at fairesearch, believes Deutsche Bank has become a self-service store for investment bankers.

On tagesschau.de, he comments: “In the years 2015 to 2020, the bank generated a total loss for shareholders of around €15.4 billion and rewarded its employees – mainly investment bankers – for this with performance bonuses of €10.6 billion.”

We will continue to watch what happens next for Deutsche Bank. It might provide a clue to the health of the entire European banking sector as we enter the second half of 2021.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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