Banker Says `Days to Weeks' To Restore Confidence in System
Sept. 6, 2007 (EIRNS)Deutsche Bank CEO Josef Ackermann urgently calls on bankers to "restore confidence" in the markets "in the next few days and weeks," in a front page London Financial Times interview which notes Ackermann spent much of his two-week vacation in Switzerland "on the phone" with "rival bankers and regulators. He says confidence could be restored by having bankers reveal the full extent of losses, to concur amongst themselves how to write down those losses, and then "hopefully markets will recover and ... price levels will come back" because investors will see bankers have "digested" the worst part of the losses.
Among those who lost confidence are the banks and private equity firms who made plans for more than $300 billion of LBO loans to finance private equity deals of which Deutsche Bank has over $39 billion. But now most of these LBOs are in limbo as the credit markets have seized up. He reveals that central banks and audit firms are discussing how to deal with the write downs of their bad debt but "there is no common policy yet," the worried banker said. A policy is needed within days before banks such as Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns issue their 3Q reports in the next weeks. Ackermann called the current credit crunch a "wake-up call for the German banking sector," and he pleads that other countries wake up too, soon.
Laughably, Ackermann remarks, "No one would have said ... that liquidity would dry up in such a dramatic way." The FT adds a note of reality to his fairy tale writing, "Despite the actions of central banks in Europe and the US to ease the pressure, liquidity remains a problem." The FT's observation was before today's massive liquidity pumping by the U.S. Federal Reserve, the European Central Bank and announced plans to do so by the Bank of England. He tries to blame the crisis on the non-banks and on "banks with no real business model" to generate revenues, the state banks like Sachsen LB for example, which were tempted to take risks. "To speculate on behalf of taxpayers is not what they should do," he counsels. So if the big players started to establish voluntary transparency, it would be possible to re-establish "confidence" in the markets. This will all take time, he muses, and he insists banks have been "fantastic" at dispersing risk throughout the financial system.
Ironically, Ackermann's language here is somewhat Greenspanishly vague. Two days earlier, at a Frankfurt banking panel, he lashed out at those state banks for wanting commercial paper as long as it generated profit, but now as things are not so easy anymore, they start to complain. To which Herbert Haasis, head of the German Savings Banks Association, said that it was most absurd if someone tried to play the fire protection consultant, if he had put things on fire, before.