Deutsche Bank's chief executive Josef Ackermann has warned that the euro zone debt crisis will hurt bank profits for years and could kill off the weakest.
The head of Germany's top bank described prospects for the financial sector as 'rather limited'. Mr Ackermann was speaking at Frankfurt's annual Banks in Transition conference against a backdrop of gloom in the capital markets, due to fears that some euro zone countries could default on their debts.
Shares in the banks that hold much of that debt dropped today towards the two-year lows they reached in August.
Despite his gloomy outlook for profits, Ackermann rejected calls for urgent recapitalisation. A forcible recapitalisation would 'threaten to send the signal that politics has lost faith in the ability of existing measures to succeed,' said the boss of Germany's biggest lender.
Ackermann also warned that many European banks could go under if they had to accept the 'haircut' on their sovereign debt holdings that has been proposed in some quarters.
Europe's banks need more capital - Lagarde
The head of the International Monetary Fund, Christine Lagarde, insisted earlier that European banks needed extra capital.
"We believe that overall it is necessary to recapitalise European banks so that they are strong enough to withstand the risks linked to the debt crisis and weak growth," Lagarde told the weekly magazine Der Spiegel. Recapitalisation was needed "to avert contagion' of the problems", she said.
Lagarde was repeating a call she made a few days ago for urgent strengthening of the balance sheets of European banks. Her remarks provoked strong criticism from some personalities in Europe who replied that the banking system has adequate funds.
Lagarde also said in the interview that Germany, which has a strong export surplus, should stimulate internal demand because this would be good for the German economy and for the economies of neighbouring countries.
Lagarde, when French Finance Minister before becoming head of the IMF, had criticised Germany for being over dependent on exports for growth and for having insufficient domestic consumption.
Euro banks park more cash with ECB
Euro zone banks deposited the biggest amount of overnight funds at the ECB so far this year on Friday, official data showed today in a signal that banks are wary of lending to each other.
Euro zone banks put €151 billion on deposit for 24 hours at the European Central Bank, against a background of renewed concerns about the euro zone debt crisis.
The previous record for such overnight deposits was on August 8 when the amount totalled €145.2 billion.
The level of these deposits at the central bank is an indicator of the reluctance of banks to lend to each other on the pivotal interbank market. The money deposited at the ECB earns an interest rate of 0.75%, which is less than the rate available on the interbank market.
Banks become reluctant to lend to each other when they are concerned about the capacity of the borrower to repay the loan. When reluctance to lend occurs across the board it can be a signal that banks consider they do not have enough information about the state of the finances of other banks, and particularly about the health of their balance sheets.
There is concern that some banks in the European Union might find themselves in difficulties if the euro zone debt crisis worsens, because they hold large amounts of debt bonds issued by countries under pressure.
