Banks ponder the meaning of life as Deutsche agonizes
By Carmel Crimmins and Olivia Oran
WASHINGTON (Reuters) - It wasn't just Deutsche Bank that was grappling with big questions about the future at the International Monetary Fund meetings in Washington last week.
The German bank is scrambling to overhaul its operations as it faces a multi-billion dollar fine for selling toxic mortgage-backed securities in the United States.
But many others in the banking industry are also still figuring out what they should be doing, nearly a decade after the financial crisis, as they grapple with anemic economic growth, wafer-thin returns on lending and the possibility that regulators will further hike their cost of doing business.
“This new world of low interest rates and even negative interest rates is something that is very difficult,” said Frederic Oudea, the chief executive of French bank Societe Generale.
“It is a game changer, not just for banks but for the whole financial industry,” he told an audience from the Institute of International Finance (IIF), a trade group for big banks that holds its annual meeting alongside the IMF.
Deutsche Bank’s immediate obstacle is the U.S. Department of Justice's demand for a massive fine over the sale of bad mortgage bonds that could far exceed the 5.5 billion euros ($6.2 billion) in provisions that the bank has set aside. Such a bill could require it to raise more capital.
But Deutsche Bank’s fundamental problem is that its large investment banking business doesn’t fit the post-crisis era.
Chief Executive John Cryan is in the middle of an overhaul, cutting jobs and selling assets. But with interest rates showing no signs of lifting, he needs to move fast. Continued...