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Ackermann warns of monoline 'tsunami'

Discussion in 'Financial Cents' started by hacon1, Feb 8, 2008.

  1. hacon1

    hacon1 Monkey+++

    Ackermann warns of monoline 'tsunami'

    By Chris Hughes in Frankfurt
    Published: 7/2/2008 | Last Updated: 7/2/2008 20:55 London Time

    Credit rating downgrades of troubled bond insurers could trigger a potential financial "tsunami" that could be as far-reaching as the subprime mortgage crisis, the chief executive of Deutsche Bank warned on Thursday.

    The alert by Josef Ackermann came as the banking sector continued to suffer from fears that rating downgrades to bond insurers, or monolines could lead to another round of writedowns of investments and renewed capital constraints. If the monolines are downgraded, the bonds they insure fall in value.

    Mr Ackermann forecast that the US would see a sharp economic slowdown but would avoid a recession "assuming no monoline tsunami hitting us". But he added in an interview with Bloomberg that the downgrades among the bond insurers could trigger a "tsunami-like event comparable to subprime''. Mr Ackermann said the German bank was well placed to cope with the challenges ahead. Even a "meltdown" in the monoline sector would be "manageable" due to hedges on its exposure.

    Deutsche earlier bucked the gloom among investment banks by saying it was sticking to its pre-tax profit target for this year after posting better-than-expected fourth-quarter results.

    Pre-tax profits at Germany's largest bank fell 25 per cent to €1.4bn ($2.04bn) in the last three months of 2007. The figures benefited from the absence of fresh writedowns on mortgage-related and structured credit securities, which in the third quarter had totalled €1.56bn. Writedowns on its leveraged finance portfolio were €44m, against €603m in the preceding quarter.

    Mr Ackermann said the bank was placed to take market share in its businesses this year, reaffirming the bank's goal to make €8.4bn pre-tax profits this year.

    Mr Ackermann, who turned 60 on Thursday, said that he did not believe a large merger with another wholesale bank would make sense for Deutsche.

    However, he said Deutsche would be interested in buying a German retail bank such as Postbank if it were approached.

    Anshu Jain, global head of markets, said he did not expect the London-based investment banking operations to see drastic cuts.

    Mr Ackermann also warned that investment bank compensation would become "a political issue" after several banks upped their bonus pools in spite of poor performance. Shares in Deutsche rose 0.4 per cent to €75.27.

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