Head Of Deutsche Bank Says Negative Interest Rates Could Have 'Fatal Consequences'
The head of Germany's largest bank says negative rates are 'fatal'
Cryan says negative interest-rate policy could have 'fatal consequences'
Add John Cryan to the ensemble of Wall Street heavyweights decrying the emergence of negative-yielding debt.
Cryan, the chief executive of Deutsche Bank—Germany’s largest and most prominent bank, with some €1.7 trillion ($1.9 trillion) in assets—cautioned that the negative interest-rate policy could have “fatal consequences.” He made is remarks as part of a guest commentary published in the German newspaper Handelsblatt on Aug. 23.
“Monetary policy is now running counter to the aims of strengthening the economy and making the European banking system safer,” Cryan said, ahead of a bank summit starting Aug. 31.
Cryan also said negative rates punish savers and could have disastrous implications for pensions, which attempt to match their liabilities with safe, interest-bearing assets like bonds.
The remarks come as the U.S. stock market is hovering near records, with the S&P 500 index SPX, -0.10% (SPX) (SPY) Dow Jones Industrial Average DJIA, -0.20% (DIA) and Nasdaq Composite Index COMP, +0.13% all less than a percent from all-time highs, as of Wednesday’s close. Government bond yields are hanging near historic lows, with the U.S. benchmark 10-year Treasury note TMUBMUSD10Y, +2.39% (TLT) bearing a yield of 1.56% and Germany’s benchmark 10-year bund TMBMKDE-10Y, +0.14% yielding negative 0.008%, according to FactSet.
The Deutsche Bank boss’s comments also come amid a concatenation of warnings from high-profile investors and pundits, including Janus Capital’s Bill Gross,DoubleLine Capital’s Jeff Gundlach, and recently the author of Grant’s Interest Rate Observer, Jim Grant.
For Deutsche Bank’s DB, -0.18% (DB) part, the institution has been among the large European banks that have more acutely felt the pinch of negative interest rates in Europe, which has crimped the profitability of lenders.
Ultralow and below-zero rates have helped to push Deutsche Bank’s shares down nearly 45% on year-to-date basis. The bank has been hard hit in the wake of the U.K.’s vote on June 23 to exit from the European Union, which briefly rocked markets. Given its elevated profile among global financial institutions and its inability to shake of the hangover of the 2008-2009 financial crisis, the German bank has spent years under the Klieg lights of regulatory and investor scrutiny.
The International Monetary Fund in June referred to Deutsche Bank as the riskiest financial institution in the world. The bank was among the worst performers, including Banca Monte dei Paschi di Siena S.p. A BMPS, +8.96% on a European test of the ability of banks to withstand unexpected shocks to the system.
Courtesy of marketwatch.com