Chillin' out till it needs to be funded
A profit warning from Deutsche Bank AG and a prediction HSBC Holdings Plc may need fresh capital shook confidence in two European banks previously credited with dodging the worst of the economic crisis.
Shares in Deutsche Bank and HSBC both tumbled by about 8% on Wednesday [Jan. 14], helping drag down the European sector as a whole by around 6%.
Deutsche Bank surprised shareholders with news it had racked up a loss of more than $6 billion in the final three months of last year.
Meanwhile analysts at Morgan Stanley predicted HSBC may need to raise up to $30 billion in a rights issue.
The Deutsche Bank profit warning is a fresh sign that clouds continue to darken over Europe’s banks after the storm that started with risky American loans toppled many of Wall Street’s top names.
The crisis has forced top U.S. bank Citigroup Inc. into talks with Morgan Stanley to merge their broking arms.
Deutsche Bank’s rivals UBS and Credit Suisse have already warned of heavy losses in the final three months of last year.
Deutsche Bank, although predominantly an investment bank, had been seen as a relatively safe bet after managers gave repeated reassurances as the crisis unfolded. Investors therefore responded negatively after the bank said its profits last year had been ruined by choppy markets as well as the need to run down risky exposures.
The German flagship’s warning that it was set to make a loss of almost 4 billion euro ($5.3 billion) in 2008 is another public setback for a country some have criticized for responding slowly as its list of banking casualties grows. Earlier sources told Reuters that Germany was preparing to partly nationalize a second bank, Hypo Real Estate, after Commerzbank.
Meantime Deutsche Bank took the chance to hammer out a quicker-than-expected deal with Deutsche Post AG to buy Postbank.
HSBC declined comment after Morgan Stanley analysts cut their forecasts for the bank for this year and next, and said its capital position relative to rivals is no longer as strong as it had been.
“Our detailed study … reinforces our belief that it will have to halve the dividend and raise major capital in 2009,” Morgan Stanley analysts said in a note.