Tuesday, March 27, 2012

Deutsche Bank Loves Risk

Just because every financial institution prints a risk disclaimer on the footer of every web page, email, brochure etc, about risk,  it doesn’t stop them from heeding their own advice.  This was obviously a problem for the likes of Lehman Bros, AIG, and Bear Stearns to name a few.  But now, a new member of the “financial gambling” party has emerged.  According to a recent report from Bloomberg, Deutsche Bank has recently surpassed BNP Paribas for the biggest bank in Europe in terms of balance sheet.  The companies assets have now hit $2.88 trillion; that’s nearly the size of all of Germany’s GDP.

The rise in assets has been the result of aggressive leverage taking from Deutsche Bank’s CEO Josef Ackermann who has decided that he has no problems with increasing risk in the current environment of more prudent lending.  In any event, Ackermann’s actions will ultimately fall on others hands as he is set to retire from the bank in May.  Is he leaving the company vulnerable? Only time will tell.

More on Deutsche Bank
Deutsche Bank AG (DBK), adding assets as other lenders trim their balance sheets, leapfrogged France’s BNP Paribas SA (BNP) to reclaim the title of Europe’s largest bank.
Assets at the Frankfurt-based company rose 14 percent to 2.16 trillion euros ($2.88 trillion) in 2011, making it the largest publicly traded bank in Europe for the first time in five years, according to data compiled by Bloomberg.
Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money.
“Deutsche Bank has been pretty decidedly opposed to reducing its balance sheet,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment. “It’s understandable: The higher your leverage, the higher the returns when times are good. They want to cut as little as possible to keep doing as much business as possible.”   Read More

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