Sept. 1 (Bloomberg) -- Deutsche Bank AG Chief Executive Officer Josef Ackermann rejected a call by International Monetary Fund Managing Director Christine Lagarde to force European banks to increase capital levels.
“What’s been demanded from well-known figures, that banks face mandatory recapitalizations, I think nothing at all of that,” he said yesterday at a conference in Berlin. Ackermann is also chairman of the Institute of International Finance, a Washington-based lobby group for the global banking industry.
Lagarde, speaking to international finance officials and economists in Jackson Hole, Wyoming, on Aug. 27, said European banks may require “urgent” recapitalization to prevent the region’s debt crisis from infecting more countries and to avoid a liquidity crisis. The European Banking Authority proposed giving the European Financial Stability Facility, the fund used to backstop euro-region governments, the power to put capital directly into banks, stoking concerns about the health of the continent’s lenders.
“The risks are back,” Ackermann, 63, said last night. Banks, particularly in the dollar area, “have become hesitant” to provide liquidity, and long-term financing on the markets is “difficult at the moment,” he said. Lenders in countries considered risky are very dependent on refinancing from the European Central Bank.
Frankfurt-based Deutsche Bank is “more strongly capitalized than ever before,” and is having “absolutely no problems” with refinancing, he said.
The Bloomberg Europe Banks and Financial Services Index of 46 stocks declined 27 percent this year. The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.64 percentage point today, within 6 basis points of the widest gap since April 2009.
“Trust between banks is ebbing and the interbank market is partially dried up and some banks would be in a tight liquidity situation without the ECB,” Wolfgang Kirsch, chief executive officer of DZ Bank AG, Germany’s largest cooperative lender, said in a speech in Frankfurt yesterday. “Spreads on financial firms have risen above levels we saw in the Lehman crisis,” he said, referring to the collapse of the New York-based investment bank in September 2008 and the subsequent credit crunch.
The damage to the balance sheets of euro-region banks from holding Irish, Greek, Portuguese, Italian, Spanish and Belgian sovereign debt may amount to as much as 200 billion euros ($286 billion), according to one estimate by IMF staff, the Financial Times reported, citing two unidentified IMF officials.
A draft of the IMF’s Global Financial Stability Report, which uses credit default swap prices to estimate the market value of the six countries’ government debt, has put IMF officials and European authorities at loggerheads, with the ECB and euro-zone governments dismissing the document as partial and misleading, the newspaper said.
Under its current setup, the EFSF can only grant funds to governments. The German government and financial regulator Bafin oppose giving EFSF the power to directly inject capital into banks. The Association of German Banks, which represents commercial lenders including Deutsche Bank and Commerzbank AG, also rejected the idea, Die Welt reported yesterday, citing an interview with general manager Michael Kemmer. He said the country’s lenders are “well capitalized.”
Ackermann also backed the German government’s opposition to joint euro bonds, saying they’re not a “silver bullet.” European Union President Herman Van Rompuy on Aug. 20 ruled out issuing common bonds as a cure for the debt crisis, saying any joint borrowing should wait until European economies and budgets are better aligned.
The Deutsche Bank chief said he doesn’t expect the global economy to slip into a recession.
Germany and most other European countries will have “stable growth and I believe we also won’t slip back into recession in the U.S.,” he said. “So this spreading of panic and fear-mongering is simply mistaken.”
--With assistance by Nicholas Comfort in Frankfurt. Editors: Frank Connelly, Angela Cullen
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