(Adds comments from IMF official, analyst)
By David Lawder and Lesley Wroughton
WASHINGTON Oct 5 International Monetary Fund
officials sought to play down the risk of an imminent crisis
over Deutsche Bank on Wednesday and expressed
confidence that German and European authorities were working to
Questions over the health of Germany's largest lender loomed
large over the start of the IMF and World Bank annual meetings
in Washington, dominating a news conference on risks to global
Deutsche has been engulfed by a crisis of confidence since
the U.S. Department of Justice last month demanded up to $14
billion to settle claims that Deutsche missold U.S.
mortgage-backed securities before the financial crisis. The
amount is viewed as a major drain on its capital.
Peter Dattels, the IMF's markets and capital markets deputy
director, said Deutsche Bank was systemically important and
needed to revise an outdated business model that has left it
earning too little profit in an era of very low to negative
"Deutsche Bank ... is among banks that need to continue to
adjust to convince investors that its business model is viable
going forward and has addressed the issues of operational risk
arising from litigation," Dattels told reporters.
He added: "We are confident that the German and European
authorities are monitoring the situation and working to ensure
the financial system remains resilient."
IMF officials speaking on condition of anonymity said that
while the institution was concerned about Deutsche's situation,
they did not want to trigger further market disruptions with
Dattels' comments came as the IMF released a new global
financial stability report warning that European banks need
"urgent and comprehensive action" to address legacy
non-performing loans and inefficient business models that will
not allow them to earn enough profits to stay viable and support
Deutsche has seen its share price recover in the last few
days amid reports that it may be able to negotiate a lower U.S.
fine and on supportive statements from clients and rival banks.
Among those in attendance at the Washington meetings, which
also include those hosted by the Institute of International
Finance banking trade group, will be Deutsche Bank's chief
executive, John Cryan, and German Finance Minister Wolfgang
It was unclear whether Schaeuble planned to speak with U.S.
regulators or the U.S. Treasury Department about the matter.
Jacob Funk Kierkegaard, a senior fellow at the Peterson
Institute for International Economics, said that it would be
"politically risky" for Schaeuble to try to intervene on
Deutsche's behalf in the run-up to German elections in 2017.
"They would also like to see this just go away, and for them
to preemptively get into the spending of political capital I
find that highly unlikely," Kierkegaard said.
LONG LOW-RATE ERA
Dattels said the message from IMF officials on banks at the
meetings is that the era of low and negative interest rates
"could last a long, long time," and European banks need to
adjust to that.
"Inefficiencies can no longer be tolerated," he said. "We
can no longer wait for a cyclical recovery, so let's do the hard
work now, and get the system in a position that it can continue
to support the economic recovery through lending and maintain
Banks in Europe are still choked with some 900 billion euros
in bad debt ($1.01 trillion) left over from the last financial
crisis, Dattels said, adding that many banks have too many
branches collecting too few deposits, with costs far above those
of U.S. rivals. Even if a cyclical recovery were to gain steam
in Europe, profits would be too low for many banks to regain
health and resolve problem assets.
The IMF's stability report recommended that European
regulators and policymakers strengthen insolvency regimes to
allow banks to foreclose on legacy non-performing loans more
quickly, while weaker banks need to be consolidated into
stronger ones and costs need to be reduced.
Adoption of these measures, along with regulatory changes
that boost confidence without a massive increase in capital
requirements, could boost European banks' profitability by $40
billion annually. Combined with a cyclical recovery, they could
boost the share of European banks considered "healthy" to 72
percent from 17 percent last year, the report said.
(Reporting by David Lawder; Additional reporting by Lesley
Wroughton; Editing by Leslie Adler, Andrea Ricci and Frances