March 9, 2020 / 4:43 PM / 23 days ago

Deutsche Bank party short lived as coronavirus threatens recovery

FRANKFURT (Reuters) - Deutsche Bank’s (DBKGn.DE) cancellation of its 150th anniversary ceremony is not the only celebration that Germany’s biggest bank is having to shelve as a result of the coronavirus outbreak.

FILE PHOTO: A bee collects pollen at a flower near a Deutsche Bank office in London, Britain July 8, 2019. REUTERS/Simon Dawson/File Photo

The rapid spread of the flu-like disease has also sparked fears among some of its own bankers and investors that a long-hoped for turnaround is at risk.

Shares in Deutsche Bank fell to a record low on Monday, sliding by as much as 17% in one its biggest drops in decades as the bank announced new measures to shield employees from the coronavirus outbreak, including the cancellation of its Berlin birthday bash on March 21.

Deutsche Bank is not the only lender whose prospects are dimmed by the coronavirus outbreak, which is hitting German peers such as Commerzbank (CBKG.DE) and European rivals.

But as one of the continent’s biggest and most fragile banks, it is desperate for a reprieve after five years of losses.

Bankers at Deutsche were until recently basking in a rally in its shares, the successful issuance of a risky bond, regained market share in Germany and a new top investor in a significant vote of confidence in the bank. The investor, Capital Group, declined to comment.

But the shares have slipped since mid-February as the epidemic gained a foothold in Europe, spooking financial markets and sparking emergency meetings and measures by policymakers.

The turmoil will make it much harder for the bank to execute its turnaround plan, a senior banker told Reuters.

And BlackRock, a top Deutsche Bank investor, took a short position in it as of last week, a filing showed. BlackRock declined to comment on Monday.

Deutsche Bank, whose finance chief James von Moltke last month conceded that “no one really knows the path of this situation”, also declined to comment.

Another top shareholder is concerned that the coronavirus has been wreaking havoc on Italy, China and South Korea, which are all important markets for Deutsche Bank, a source close to the investor said.

“That is certainly something that will work against Deutsche,” the source said.

A third top investor said it is possible that Deutsche Bank will have trouble meeting its closely-watched cost target as expenses to combat the virus’s spread rise.

‘BAD LUCK’

Deutsche Bank expanded measures to protect employees from contagion on Monday, splitting some trading and infrastructure teams in London.

It had already imposed such measures in locations including China, Italy and Switzerland.

Deutsche Bank, which last year called off talks to merge with Commerzbank, is now counting on other measures to turn around its fortunes, including shedding 18,000 staff, selling off complicated assets and exiting some businesses.

It has been aiming to focus more on its home market after years of rapid global expansion.

In a sign of progress, Deutsche Bank has gained market share in organizing syndicated loans for German companies, data compiled by Dealogic for Reuters show.

The data, for the period from the start of the year through Friday, also showed a slight gain in market share for Deutsche Bank’s role in issuing bonds for German corporates and the fees it gets for advising them on mergers and acquisitions.

But analysts still expect it to swing to a net loss for the quarter ending on March 31, and a 9% drop in total revenue from a year ago, a consensus forecast posted last week on Deutsche Bank’s investor relations website shows.

“We can’t relax,” another top Deutsche banker said.

Hans-Peter Burghof, a professor at the University of Hohenheim, said Deutsche Bank needs positive developments.

“It’s very bad if a new strategy meets bad luck,” he said.

The German economy’s heavy reliance on mid-sized export oriented firms, known as the Mittelstand, also poses a particular challenge, Burghof said.

Such companies are especially threatened by supply-chain disruptions, which could in turn hurt their banks.

Shares in Commerzbank, which counts the Mittelstand as a key clients base, also hit a record low, down as much as 14%, representing a 32% drop since the start of the year.

Reporting by Tom Sims, Patricia Uhlig, Hans Seidenstuecker in Frankfurt and Matt Scuffham in New York; Editing by Alexander Smith

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