German Banks an Accident Waiting to Happen: Expert
Germany's banking system is one of the worst in the world, according to Paul Gambles, managing partner at advisory firm MBMG International, who told CNBC that Deutsche Bank is over-leveraged and is an accident waiting to happen.
Responding to German retail sales data, which showed a surprise rise of 0.8 percent month-on-month in May, Gamble said that Germany was the key problem with the euro zone project. German exports to the rest of Europe ensure that it remains the profitable powerhouse of Europe, but that wealth is then transferred back to the struggling periphery through bailout agreements.
"Germany is the big problem...we've got this transfer of wealth that goes on all the time from the periphery to the core and what Germany is actually doing is recycling that as funding for the periphery," he said. "The other thing that doesn't get pointed out is just how dependent this horrible, bloated German banking system - which to me looks like one of the worst banking systems in the world - has now become."
Gambles singled out the country's biggest lender as being an "accident waiting to happen" and said it has been for the last five years.
"Deutsche has still got horrible leverage based on very poor quality assets. A lot of the reason that we have had the policies that we have had since 2008 have been about trying to keep the German banking system alive," he said.
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Deutsche Bank's capital levels are also "horrible", according to Thomas Hoenig, a vice chairman of U.S. regulator the Federal Deposit Insurance Corp (FDIC). In mid-June he used an alternative measurement - based on European IFRS accounting rules - to show that the bank's leverage ratio stood at 1.63 percent as of the end of 2012.
"It's horrible, I mean they're horribly undercapitalized," he told Reuters in an interview. "They have no margin of error."
Deutsche Bank responded to the comments by explaining that the ratio now stood at 2.1 percent, according to Reuters. Stefan Krause, the bank's chief financial officer dismissed the measurement used, preferring instead to use generally accepted accounting principles in the U.S, which show the ratio at a comfortable 4.5 percent.
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"To say that we are undercapitalized is inaccurate because if you look at the Basel framework, we're now one of the best capitalized banks in the world after our capital raise," he told Reuters.
Fellow German lender Commerzbank announced a new cost-cutting program in June, suggesting that the German banking system is still in the process of readjustment. Five thousand jobs are set to be cut at the bank, according to Reuters.
Deutsche Bank was not immediately available for comment.
—By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.