Deutche Bank shares hit a lifetime low after the US Justice Department suggested the bank pay USD 14 billion to settle investigations related to mortgage securities.
The bank is a lever to all the major institutions in Europe, which is a continent with already fragile banks and practically no economic growth. So if Deutsche Bank would debilitate then would this have a rippling effect on banks and weaken Europe further and impact global markets too is the big worry.
Michael Every of Rabobank said it is difficult to say if the Germany will bail it out because although the hundred-year history of Central Banks tell you how to handle these things but currently politics seems to rule over economic logic in Europe.
Agreeing with Every’s views Geoff Lewis of Manulife Asset Management said if there is a problem with a bank in a country like Germany then global investors need to worry because banks occupy a special place in the financial system but the Europeans just don’t seem to understand that.
So, if we do not see an early resolution to Deutsche Bank’s problems then it is going to spread doubt over all the major European banks and would be another headwind for the struggling European economies. “It requires a decisive action,” said Lewis.
However, the global equity markets seem to ignore this risk and are being complacent - is there a risk?
Every said there is no justification for the recent surge in them because it is not sustainable especially when one would look at problems in Europe, in the US and in China. There are massive worries looming over us but still equity prices continue to move higher, which is totally unjustified, he added.
Lewis said investors are looking to see if there are signs of life in US economy because there is no strong growth anywhere. However, some of the PMI data points show that some of the emerging markets are no longer in a deep recession and others have reasonable growth but it is difficult to see any value in developed market sovereign bonds. Therefore, investors can take risks but they should be wary and hold reasonable amount of cash in hand.For entire interview, watch video...
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