Market news :: Banking, Personal finances and Finance

Bill shock deutsche bank bailout denials spark 2008 lehman brothers comparisons


THE German government and Deutsche Bank were at pains Wednesday to quash speculation of a rescue plan for the troubled lender, in an effort to reassure investors spooked by a potentially massive US fine.

The denials came after Deutsches share price sank to a record low this week on reports that Germanys biggest bank had asked Berlin for help after US authorities demanded an unaffordable $US14 billion ($18.21 billion) fine over the subprime mortgage crisis.

State aid is not on the table, chief executive John Cryan told Germanys biggest-selling newspaper iBild.

But investors were further rattled when news weekly iDie Zeit on Wednesday reported that German and EU officials were working on an emergency plan for Deutsche if the worst comes to the worst.

People are starting to take this more seriously.Deutsche Bank vs. the FINAL days of Lehman Brothers: this site $DB $LEH pic.twitter.com/olocdsGlxm

The one chart of #DeutscheBank that you must never, ever, ever, ever, ever, EVER forget.$DB pic.twitter.com/Rk0GfgjdtX

Dick Fuld April 2008 "The worst of the financial crisis impact is behind us" this site

Lehman chart & #DeutscheBank look very, very similar. Deutsche is about 3-5 times bigger and will bring down Europe. this site

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Germanys finance ministry swiftly shot down any talk of such a bailout. The report is wrong. The government is not preparing rescue plans. There are no grounds for such speculation, the ministry said in a statement.

Reacting to the flurry of news, Deutsche Banks shares gained 2.04 per cent by close of trade in Frankfurt, ending the session at 10.77 euros ($15.71), while the DAX 30 index of leading German shares gained 0.74 per cent.

Uncertainty over the banks financial health had seen shares hit a record low on Monday, dropping 7.54 per cent to close at 10.55 euros ($15.39) and ending at the same level on Tuesday.

OFFLOADING ASSETS

Deutsche has been dominating business headlines ever since the US Department of Justice (DoJ) made its demand for the eye-watering fine earlier this month.

If Deutsche is unable to negotiate the sum down to less than the $US5.5 billion ($7.15 billion) it has set aside for legal costs and fines, it could be forced to raise fresh capital on the markets, diluting the value of its shares, or weakening its balance sheet.

We expect the DoJ will treat us just as fairly as the American banks that have settled for much less in similar cases, Cryan insisted to iBild.

Eager to show investors it was working to clean up its balance sheet, Deutsche on Wednesday announced it had agreed to offload its British insurance company Abbey Life to life insurer Phoenix Group for 1.1 billion euros ($1.6 billion), which will provide a slight boost to its capital buffer.

bAT NO POINT ASKED FOR HELP

Cryan insisted to Bild that he had at no point asked Chancellor Angela Merkel for a rescue.

But Die Zeit is to report on Thursday on plans by Berlin if the worst comes to the worst to sell off parts of Deutsche to other financial institutions, and possibly buy a 25 per cent stake.

Some voices in the government favour involving the European Single Resolution Mechanism, set up in the wake of the financial crisis to prevent taxpayer bailouts of failing banks, the newspaper said.

In that case, creditors and customers would bear a share of the rescue costs potentially creating fresh chaos on the financial markets.

German officials believe attempting to intercede with the US authorities could be potentially counter-productive, iDie Zeit said in an extract sent out on Wednesday.

Deutsche faces further looming problems in the shape of an investigation by New York regulators into alleged money laundering at its Russian branch.

The two cases are among the most pressing of some 8000 weighing on Deutsche, and CEO Cryan has promised to resolve them by the end of the year.

The lenders woes come as European banks complain of a harsh business environment, confronting low interest rates cutting into their profit margins, anaemic economic growth, fierce competition and high requirements on the amount of capital they must hold as a buffer against future crises.

European Central Bank president Mario Draghi rejected attempts to blame him for Deutsches travails.

If a bank represents a systemic threat for the eurozone, this cannot be because of low interest rates, he told journalists in Berlin after meeting with German politicians.

In the bosss chair at Deutsche Bank for a little over a year, Cryan has launched a massive restructuring of the Frankfurt institution and plans to slash almost 9000 jobs worldwide by 2020.

Shares in the bank have lost more than half of their value since January after it booked an almost 7 billion euro ($10.21 billion) loss in 2015.

Writing in iThe Telegraph, financial commentator Matthew Lynn said the Deutsche Bank crisis could take down Chancellor Merkel and the euro.

Last October, the shares were at 27 euros. Back in 2007, they were over 100 euros, and even in the spring of 2009, when banks were crashing all across the world, they were still trading at close on 17 euros, he wrote.

For most of this year they have been sliding fast. On Monday, they crashed again, down another 6pc. Its bonds have slumped as well, while the cost of credit default swaps essentially a way of hedging against a collapse have jumped. It all has a very 2008 feel to it./p

Billions wiped from federal government coffers through capital gains tax property discount




EXCLUSIVE

NEARLY $24 billion has been wiped from Federal Government coffers in just five years by a capital-gains tax discount economists claim rewards the rich and freezes out first homebuyers, new estimates show.

Treasury predicts these lost revenues will increase by another $23 billion to a total of $46 billion over the next three years.

This is on top of revenue foregone because of negative gearing, previously estimated at $5 billion a year.

And it comes as the Property Council of Australia indicates for the first time its willing to support reducing the 50 per cent concession given to some property investors.

A comprehensive and consultative reform package is one of the key policies the Turnbull Government has promised to take to the next Federal election.

Public discussions to date have largely centred on possible changes to the goods and services tax, thanks in part to persistent protests by the Opposition.

But an analysis of Treasury figures by News Corp reveals the amount of revenue lost via the CGT concession given to individuals and trusts on property held for more than a year will skyrocket from $4.41 billion in 2010-11 to $8.31 billion in 2017-18.

This is in addition to the billions of dollars collected between 2000-01, when the discount was introduced, and 2009-10 which previous Treasury documents suggest could be worth as much as $48 billion.

News Corp this week contacted the Treasurers office to confirm this sum, but was told previous Tax Expenditure Statements could not be relied on because forecasting benchmarks could change and the estimates were of medium reliability.

A spokesman for the Treasurer declined to provide new figures.

AMP chief economist Shane Oliver said the discount, introduced by the Howard Government, was too generous and distorted the tax system.

The decision in the (late) 1990s to introduce the CGT discount reopened a huge hole in the tax system which is therefore putting more pressure on regular income taxpayers to pay higher tax, he said.

(Its) also having the unintended consequence of making life tougher for first homebuyers as well.

Dr Oliver said the concession should be scrapped and replaced with the previous system, which taxed investors on the real portion of capital growth by indexing for inflation.

Bank of America Merrill Lynch chief economist Saul Eslake said hed prefer to see the discount lowered to 33 per cent, which would roughly approximate the previous system but require less red-tape.

He agreed the current system benefited the wealthy and pushed up property prices.

Mr Eslake said while it would be incorrect to conclude the budget would be $72 billion better off now had the discount not been introduced because the extra revenue would likely have been spent, the concession was a significant impediment to budget repair.

The midyear economic and fiscal outlook handed down by the Government last month predicted the deficit would increase to $37.4 billion partially because of a shortfall in tax revenues.

In 2018-19 the deficit is predicted to drop to $14.2 billion less than two times the $8.3 billion in revenue lost because of the CGT discount the year before.

Responding to questions from News Corp this week, a spokesman for Treasurer Scott Morrison said: The Government is engaged in a discussion on taxation so we can ensure we better assist Australians to work, save and invest.

Mr Morrison and Prime Minister Malcolm Turnbull have previously claimed everything was on the table when it came to tax reform.

Property Council of Australias Ken Morrison said he had told the government his organisation would support lowering the discount to 40 per cent and extending the eligibility period to two years.

There needs to be some CGT discount; its not fair to tax inflation, he said.

(But we recognise) that a 50 per cent discount particularly in a low inflation environment is quite a significant discount.

Mr Morrison urged caution over changes to negative gearing however, saying property investors were responsible for one third of new housing supply.

If those that argued for the complete abolition of negative gearing and the CGT discount were successful you would certainly see less housing construction, less rental stock and higher rents as a result, he said.

Reducing the discount has previously been slated by the Australian Greens, who last year asked the Parliamentary Budget Office to cost several scenarios including reducing the discount to 40 per cent a recommendation of the 2010 Henry tax review.

The PBO reported in May this measure alone, without changes to the eligibility period, would increase revenue by $2.4 billion over the 2014-15 forward estimates.

Removing the discount entirely was predicted to boost revenue collections by $10.2 billion over the same period.

Greens deputy leader Scott Ludlam said the party would undertake further research this year before refining its policy over whether the discount should be scrapped or simply reduced.

Revenue lost because of 50 per cent CGT discount given to property investors after one than a year.

To date: Financial Year $b

2009-10 4.33

2010-11 4.48

2011-12 4.91

2012-13 3.99

2013-14 4.30

2014-15 5.41

Total: 27.42

Source: Treasury 2013 Tax Expenditure Statement

Forecast: Financial Year $b

2015-16 6.97

2016-17 7.64

2017-18 8.31

Total: 22.92

Source: MYEFO 2015 Tax Expenditure Statement