The GFC still lingers, at least for Germany's largest Bank
By Mark Brighouse, Chief Investment Officer
06 October, 2016
Two things were of interest this month and they were strongly interconnected. The first was Deutsche Bank’s share price decline to the lowest levels in 30 years and the second was foreign exchange trader Kevin Rodger’s account of his three decade career in financial markets.
Much of Mr Rodgers book is about his time at Deutsche Bank and the transformation of the firm which had a 3% market share in global foreign exchange in 1995 and became the world’s largest with a 22% market share in 2008. This push into investment banking, along with a tailwind of demand for all kinds of derivative securities, drove the bank’s share price to nearly 120 euros before the global financial crisis hit.
With the share price tumbling to around ten euros this month, people are asking ‘what went wrong at this former behemoth?’
Much of it stems from the fallout from the US mortgage market that snowballed into the global financial crisis (GFC). Deutsche Bank has been hit with heavy penalties from the US Department of Justice for miss-selling mortgage securities. Some commentators doubt the bank can afford to pay the potential civil claims that could result. Also, the bank’s interest rate traders were found to have colluded with others to manipulate the so-called London Interbank Offered Rate benchmarks that influence the rates of vast amounts of loans. In recent times, the low levels of interest rates in Europe have limited the bank’s ability to earn a decent return on its assets and rebuild its profitability.
So here we are, almost ten years after the GFC, and even though many people have seen their share portfolios and property prices recover strongly since 2007 there are still parts of the world where the effects of the GFC are continuing to exert a big and lasting influence.