Deutsche ‘riskiest bank in the world’: IMF

The IMF has labelled Deutsche Bank the greatest potential contributor to systemic global risks.

Deutsche Bank AG shares tumbled to a 30-year low on Thursday morning after the International Monetary Fund and the Federal Reserve delivered the German lender a double whammy, saying it posed a significant risk to financial stability.

The IMF said Deutsche Bank was the riskiest financial institution in the world as a potential source of external shocks to the financial system. That came right after a US unit of Deutsche Bank was one of just two banks to fail the Federal Reserve’s “stress test,” an exercise measuring how 33 banks would fare in a new financial crisis.

The news also follows recent reports that billionaire investor George Soros took a €100 million short position against Deutsche Bank the day after Britain voted to exit the European Union.

Deutsche Bank shares traded down 3.5 per cent at €12.22 ($US10.11) at 0900 GMT, after touching an intraday low of €12.05, the lowest in 30 years. Deutsche Bank and other banking shares already plummeted Friday and Monday in the wake of the UK referendum to leave the European Union.

A trader said the Fed’s criticism of Deutsche Bank’s capital planning could render future capital measures, such as a capital increase, more difficult. The bank is in the midst of a wide-reaching overhaul, after posting a €6.8 billion loss for 2015.

The IMF said in its Financial Sector Assessment Program: “Among the G-SIBs (globally systemically important banks), Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse.”

The institution also said the German banking system poses a higher degree of possible outward contagion, compared with the risks it poses internally.

“In particular, Germany, France, the UK and the US have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,” the IMF added.

The importance of Deutsche Bank emphasises the need for risk management, intense supervision and monitoring cross-border exposure, as well as the ability of globally systemic banks to carry out new resolution regimes, IMF said.

A Deutsche Bank spokesman declined to comment on the IMF assessment.

Germany needs to examine whether its resolution plans for banks are operable, including a timely valuation of assets to be transferred, continued access to financial market infrastructures, and whether authorities can ensure control over a bank if resolution actions take a few days, if needed, by imposing a moratorium, the IMF said.

with Friedrich Geiger

- Dow Jones newswires