No reason to worry about Deutsche Bank, says Scholz

After shares in Deutsche Bank dropped, the German chancellor said on Friday that there was no reason to worry about the lender.

Published: 24 March 2023 15:39 CET

No reason to worry about Deutsche Bank, says Scholz

No cause for concern after Deutsche Bank's shares drop, says German chancellor. Photo: Emmanuel Dunand/AFP

German Chancellor Olaf Scholz on Friday said there was no reason to worry about the health of Deutsche Bank after shares in the lender dropped sharply.

Shares in Deutsche Bank dropped more than 10 percent on Friday as the cost of insurance against the risk of default surged, fuelling fears about a banking sector crisis. Shares of its domestic rival Commerzbank dropped 8.5 percent while in Paris, Societe Generale was down 6.72 percent.

“Deutsche Bank has modernised and organised the way it works. It’s a very profitable bank. There is no reason to be concerned,” Scholz said after a summit of EU leaders.

This drop in shares comes after Deutsche Bank said last month that in 2022, the bank booked its highest annual profit since 2007, thanks to higher interest rates and a major cost-cutting drive.

The bank recorded a 5.03-billion-euro net profit for 2022, up from 1.9 billion euros a year earlier. The strong showing includes a one-off tax benefit of 1.4 billion euros in the United States, Deutsche Bank said.

In 2019, the bank, which is Germany’s largest lender, embarked on a strategic overhaul that included thousands of job cuts and a bigger focus on Europe. The bank has shed nearly 10,000 jobs since 2019. It currently has a global workforce of around 85,000.

Scholz, speaking after an EU summit in Brussels, added that the European banking system is “stable”.

“It paid off that we had strict rules and regulations in the past years, the banking system is stable in Europe,” Scholz said.

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Intel’s delay

The US chip giant announced Monday it is postponing plans for its project in Germany for two years as it focuses more on the United States.

This is a blow to Berlin, which had pledged 10 billion euros ($11 billion) – a third of the cost – to build the production plant in the eastern city of Magdeburg.

While Intel’s own struggles are the immediate cause for the delay, it has also fuelled concerns that Germany is becoming less attractive as a place to do business.

In this year’s ranking of the most competitive economies by Swiss business school IMD, Germany slipped two spots to 24th, with taxes, bureaucracy and poor infrastructure cited as major handicaps.

Volkswagen stalls

Auto titan Volkswagen announced earlier this month it could take the unprecedented step of closing factories in Germany for the first time in its 87-year history.

Europe’s biggest carmaker is struggling with high costs, problems in the transition to electric vehicles, and fierce competition from local rivals in key market China.

Employees of German car maker Volkswagen (VW) protest at the start of a company’s general meeting in Wolfsburg, northern Germany, on September 4, 2024. Photo by Moritz Frankenberg / POOL / AFP

A week after VW’s shock announcement, BMW announced it was recalling 1.5 million vehicles due to problems with their brakes and downgraded its outlook for the year, also citing problems in China.

Steel storm

Efforts by Thyssenkrupp to spin off its loss-making steel division and get its business back on track ran into trouble last month when a host of senior executives quit in protest at the what they said was the unacceptable behaviour of the group’s CEO.

The row centres around plans to restructure the division, which operates Europe’s largest steelworks in Duisburg, western Germany.

The conglomerate wants to separate the steelmaking unit from its other activities, which include building submarines, as it faces higher manufacturing costs and competition from cheaper Asian steel.

It already announced that it plans to cut jobs in Duisburg and reduce production.

Firms face being gobbled up

Deutsche Bahn announced last week that logistics unit Schenker, traditionally one of its most profitable arms, is to be sold to Danish group DSV, with unions fearful it could lead to thousands of job losses in Germany.

Meanwhile Italian bank UniCredit is targeting a takeover of Commerzbank after building up a nine-percent stake in Germany’s second-biggest lender, a development that reportedly blindsided Berlin and has angered German unions.

Still some say such takeovers also highlight that German firms remain attractive, despite the woes of the broader economy.

Poor indicators

After starting the year on a positive note, recent surveys – from business morale to consumer confidence – have been on a downward trend, denting hopes of a strong rebound.

Some economic institutes have cut their forecasts, and now expect either stagnation or a slight recession for the whole year.

In its last official forecast in April, the economy ministry still expected growth of 0.3 percent this year, but it may downgrade that forecast when it updates the figure soon.

Commenting after a recent batch of negative data, ING economist Carsten Brzeski summed up Germany’s problems: “Years of stagnation, and underestimating technological trends and international competition do not come without consequences.”

By Sophie MAKRIS