IMF chief gives Deutsche Bank tough advice, says need deal on fine

Thu Oct 6, 2016 8:17pm EDT
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By David Lawder and Arno Schuetze

WASHINGTON/FRANKFURT (Reuters) - IMF chief Christine Lagarde gave Deutsche Bank (DBKGn.DE: Quote) some tough advice on Thursday, saying Germany's biggest lender needed to reform its business model and rapidly reach a deal with U.S. regulators over a potentially huge fine.

A senior European official tried to shore up confidence in the continent's banking system, saying it was working well overall, while sources said Germany's financial watchdog had found no evidence so far that Deutsche violated money laundering rules in Russia, possibly relieving one of its many headaches.

Meanwhile, the chief executives of several German blue-chip companies have discussed Deutsche's problems and are ready to offer a capital injection if needed to shore up the bank, newspaper Handelsblatt reported on Thursday.

However, Lagarde did not mince her words about the problems of Deutsch, which the International Monetary Fund has identified as a bigger potential risk to the financial system than any other global bank, in an era of ultra-low interest rates.

"Deutsche Bank, like many other banks, has to look at its business model," she told Bloomberg Television during the IMF and World Bank's autumn meetings in Washington.

"It has to look at its long-term profitability - given the lower-bound interest rates we have around the world and probably for longer than many expect - and decide what size it wants to have and how it wants to strengthen its whole balance sheet."

Germany's flagship bank is under heavy pressure as it fights a penalty of up to $14 billion that the U.S. Department of Justice (DOJ) plans to impose for misselling mortgage securities, its latest setback that sent its shares to a record low last week and worried clients.

Deutsche is in the midst of a deep overhaul that includes slashing a workforce of around 100,000, revamping information technology and selling non-core assets. It struck another deal on Thursday with its works council to cut a further 1,000 staff in Germany, bringing total job losses there to 4,000.   Continued...

IMF Managing Director Christine Lagarde takes questions from the press at the annual meetings of the IMF and World Bank Group in Washington, U.S., October 6, 2016. REUTERS/James Lawler Duggan