German Banks in Turmoil

The two largest banks in Germany are going through a very difficult time, with ramifications not just for the shareholders and customers, but for the Eurozone too. Deutsche Bank shares fell nearly 7 percent on Thursday alone, bringing it close to a thirty-year low. The bank was shaken after news came of hedge funds withdrawing their assets. It was further compounded by talks of a bail-out from the German government. This was a continuation of the already 17 percent drop in the past two weeks, following a U.S. Department of Justice (DOJ) warning that the bank might have to pay fines of up to $14 billion for mis-selling mortgage bonds during the financial crisis. At the same time, Commerzbank, the second largest bank in Germany, declared that it would be letting go of nearly 10,000 staff and withholding dividends, for the first time in its history.

Deutsche Bank responded quickly to the news that about ten hedge funds had pulled out of the investment bank. It said most of its investors were still with the bank, and its unit which services hedge funds was still very profitable. Commerzbank is struggling with the same problems faced by other banks in Europe, of low interest rates and mass migration to online banking. The bank will be cutting 9,600 jobs, which is more than twenty percent of its workforce. Deutsche Bank will be parting with ten percent of its workforce. However, Commerzbank said it would add 2,300 jobs in its growth areas. The banks shares have fallen nearly 40 percent this year, while Deutsche Bank has lost nearly 50 percent. One of the largest investors to be affected is the German government, which holds 15 percent of Commerzbank shares, as part of the €18 billion bailout it gave during the financial crisis.