Europe's sovereign debt crisis will stunt bank profit for years and could kill off the weakest, Deutsche Bank chief executive Josef Ackermann told industry bosses, amid intense scrutiny of the sector's finances.
"Prospects for the financial sector overall ... are rather limited," the CEO of Germany's top bank said on Monday. "The outlook for the future growth of revenues is limited by both the current situation and structurally."
Ackermann was speaking at Frankfurt's annual Banks in Transition conference against a backdrop of gloom in the capital markets, where fears some euro zone countries could default on their debts have sent investors scurrying for shelter.
Shares in the banks that hold much of that debt dropped, with the STOXX Europe 600 banking index falling nearly 5% to its lowest in 29 months.
Fears about how the crisis will play out have halted the takeovers and stock market listings that are the lifeblood of the bloc's investment banks as slowing global economic growth puts the prospect of recovery further into the future.
"The chances of a near-term recovery remain slim as eurozone debt concerns, structural reform and a lawsuit for allegedly mis-selling mortgage debt all weigh heavy on the sector," said Manoj Ladwa, a senior trader at ETX Capital.
Deutsche stock slumped 7.5%, as did shares in Swiss rival Credit Suisse, while Royal Bank of Scotland and Societe Generale lost around 8%.
A US regulator sued 17 large banks and financial institutions on Friday over losses on about USD 200 billion of subprime bonds, adding to the sector's woes.
The European bank index has lost a third of its value this year and is the worst-performing sector.
Despite his gloomy outlook for profits, Ackermann rejected calls for urgent recapitalisation.
International Monetary Fund chief Christine Lagarde called in August for mandatory capitalisation of European banks to prevent a world recession.
A forcible recapitalisation would "threaten to send the signal that politics has lost faith in the ability of existing measures to succeed," said the boss of Germany's biggest lender.
The chairman of French rival BNP Paribas also told a conference in Paris that most banks did not need to be recapitalised.
"The stress tests that we carried out in Europe ... lead one to think that it's not obvious today that the banking system needs to be recapitalised, (although) some banks do, without a doubt," Michel Pebereau said.
Haircut couls kill
Ackermann also warned that many European banks could go under if they had to accept the "haircut" on their sovereign debt holdings that has been proposed in some quarters.
"It's stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels," he said.
Deutsche, Germany's largest lender and global investment banking player, has already warned that reaching its goal of 6.4 billion euros (USD 9.1 billion) in pretax profit for this year was becoming more difficult and required a quick and sustained resolution of the European sovereign debt crisis.
The crisis has kept banks hostage to market concerns about their capital strength and access to funding, concerns that were stoked again last week when a European source told Reuters that the IMF saw a capital shortfall of 200 billion euros (USD 284 billion) among European lenders.
Russian banks could lose around 350 billion roubles (USD 12 billion) in the event of a serious debt shock in the euro zone but stress tests show they would withstand the blow, central bank official Sergei Moiseev said in Sochi on Monday.
As the prospects recede for a return of confidence, some major lenders, including Barclays, HSBC, Goldman Sachs, Credit Suisse and UBS, have begun to slash tens of thousands of high-paying jobs.
The chief executives of Commerzbank, Societe Generale and UniCredit are also due to set out their visions for the way forward in difficult terrain.
The CEO of JP Morgan's investment bank, Jes Staley, will give the view from the other side of the Atlantic.
Ackermann may also face questions over a report that securities packaged by Deutsche are among half a dozen deals being examined by Britain's Serious Fraud Office (SFO).
The British bankers attending may be asked about a weekend report that Prime Minister David Cameron wants a watering down of proposals from the Independent Commission on Banking (ICB) to ring-fence the retail arms of top UK banks, over fears they could hurt the economy.