Following the $14 billion fine the US government hurled at Deutsche Bank (DB), sending its stock price plunging last month, Kroll Bond Ratings Agency (KBRA) issued a searing rebuttal that accuses the US Department of Justice (DoJ) of playing a “political game of chicken with one of the largest and most systemically important banks in the world.”
Responding to the fine and subsequent fears about the bank’s future, KBRA said in the report issued last week, Deutsche Bank: The Politics of Systemic Risk, that the bank is “financially stable” and has “more than adequate liquidity,” while calling the DoJ’s handling of the massive fine “irresponsible” and stating that the government agency has caused “unnecessary concern” among investors.
“KBRA believes that the sharp selloff in the debt and equity securities of DB last week was precipitated by a series of ill-considered public acts and statements by government officials in the US and Eurozone,” analysts wrote. “In particular, the hard-nosed negotiating tactics by the [DoJ], which reportedly demanded a $14 billion settlement from DB related to alleged wrongdoing with respect to residential mortgage ABS, startled investors and financial counterparties.”
Though the stock price had made up some ground following the initial plunge, DB’s shares fell more than 3 percent today after the bank was unable to secure a deal with the DoJ over the weekend.
The implications of a failure of Germany’s top bank, however remote, would have widespread implications, including a massive gap that the departure of one of the largest commercial real estate lenders in the world would create. The bank was the fourth largest direct CRE lender in 2014 with $26.6 billion of volume, according to a tally from National Real Estate Investor. The bank was also the fourth top foreign lender into the US during the first half of this year, according to data from Real Capital Analytics.
KBRA monitors the bank’s significance to the securitization market, where it issues both commercial and residential securities (probes into the bank’s handling of the latter during the financial crisis reportedly resulted in the fine). KBRA analysts called the likelihood of a failure remote, and claimed that the “settlement figure was never a real possibility.”
“KBRA believes that these actions are similar to statements made by the DoJ during negotiations with US financial institutions and that these actions were and are irresponsible,” according to KBRA. “Negotiations regarding the settlement of alleged wrongdoing should be conducted in private and subject to the confidentiality normally accorded to any legal process.”
The firm didn’t stop with the US government, also calling attention to reports that German chancellor Angela Merkel would not support DB in the event of a liquidity crisis, stating that those reports may reflect “political posturing” by Merkel and her supporters in the face of Germany’s 2017 elections.
“We believe that political leaders who seek to obtain partisan political advantage by making such statements play a very dangerous game,” analysts wrote. “KBRA believes that political officials in Europe and the US should avoid making public statements about specific financial institutions unless and until state assistance is actually extended.”
DoJ and the office of the German chancellor did not respond to requests for comment in time for publication.