Deutsche Bank has symbolised German capitalism ever since its foundation in 1870, on the eve of Germany’s unification. When Rudolf Hilferding wrote his classic Marxist study Finance Capital (1910), portraying the fusion of big investment banks with industrial firms, he might have had Deutsche Bank in mind.
In recent decades, Deutsche seemed to be ahead of the rest of the pack of European banks. Its old rival Dresdner Bank disappeared. And it sought to challenge the dominance of global investment banking by Wall Street giants such as Goldman Sachs and JP Morgan.
Now Deutsche is in trouble. Its share price has fallen by more than 50 percent this year. It reached a 33-year low of £8.64 on Thursday of last week. Before the crash of 2007-8 it was around £87.
Last month it emerged that the US government is demanding an £11 billion fine for Deutsche’s alleged misselling of mortgage-backed securities in the mid-2000s.
The fine is only a little less than the bank’s stock market value. But Deutsche’s woes are in a much larger sense a sign that many of the problems involved in the crash remain unresolved.
European governments fondly subscribe to the myth that the misbehaviour of Anglo-American banks caused the crash —and that European banks were innocent victims.
This is true in the sense that German banks in particular often naively bought up dodgy mortgage-backed securities and other kinds of credit derivatives from their unscrupulous US counterparts.
But they helped to feed the financial bubble in the eurozone by flooding Ireland and southern Europe with cheap loans. The so-called eurozone crisis was really the way in which north European governments rescued their banks.
States such as Greece were forced to implement brutal austerity programmes as a condition of getting loans to repay the northern banks.
This bailout allowed European banks to survive without the much tougher restructuring that US and British governments forced on their banking systems. Only last week Mario Draghi, president of the European Central Bank, complained that the eurozone has too many banks.
Then we should throw in the peculiarity of banks as a form of capitalist enterprise. They make their profits by lending money. But their loans—often described as bank assets—are usually vastly larger than their capital, or equity.
Banks are thus inherently bankrupt, and survive only as long as investors and depositors don’t ask for their money back. Banking is a confidence trick.
In 2015 Deutsche’s total assets were £1.42 trillion and its total equity £54.7 billion.
It’s a big bank with plenty of retail deposits so normally the markets wouldn’t be too worried. But there’s been a lot of interest in Deutsche’s £25.1 billion of so-called “level 3 assets”. These are probably worthless leftovers of the bubble, but if this were acknowledged it could wipe out up to half of Deutsche’s capital.
The legacy of the crash plays another part in Deutsche’s woes. Banking has become less profitable, thanks to a sluggish world economy, tighter regulation, and the ultra-low interest rates imposed by central banks to keep the show on the road. Deutsche’s return on equity next year is projected at less than 3 percent. Its main rival Commerzbank last week announced a 20 percent cut in its workforce to boost profits.
Finally, the politics is messy. German chancellor Angela Merkel can’t afford to let her country’s biggest bank go to the wall. But everyone hates bankers, so it would be hard for her to rescue Deutsche with federal elections coming next year.
Inter-capitalist rivalries exacerbate the situation. Other banks have been able to negotiate down their US fines, but will the US government be willing to do this amid a tight presidential election?
The US is in any case unlikely to be too gentle to a European bank after Brussels imposed a whopping bill for back taxes on Apple.
None of this implies that we’re heading for another crash. But Deutsche’s plight underlines the fragility of global capitalism nine years after the financial crisis broke out.