/ 5 September 2011

Bankers plot course as sovereign debt clouds loom

Top European bankers are due to gather in Frankfurt for a two-day conference on Monday to share insights on whether the latest sovereign debt crisis squall could yet turn into a financial market storm.

Predictions of dark clouds over the German city’s annual Banks in Transition conference are a fitting backdrop for the gloom in the capital markets, where fears over sovereign defaults in euro area periphery countries have sent investors scurrying for shelter, halting the takeovers and stock market listings that are the lifeblood of the bloc’s investment banks.

Bank shares dropped sharply early on Monday towards the two-year lows they reached in August, as if to confirm the gathering gloom in the sector. The STOXX Europe 600 Banks index was down 2.99% at 7.25am GMT, leading European shares lower.

Deutsche Bank chief executive Josef Ackermann will set the tone on day one of the conference with a review of the macroeconomic and regulatory changes that many bankers say are crimping banks’ ability to earn their way back to health.

Germany’s largest lender and global investment banking player has already warned that reaching its goal of €6.4-billion ($9.1-billion) in pretax profit for this year was becoming more difficult and required a quick and sustained resolution of the European sovereign debt crisis.

The crisis has kept banks hostage to market concerns about their capital strength and access to funding, concerns that were stoked again last week when the International Monetary Fund said Europe’s lenders needed urgent recapitalisation.

A European source said that the IMF saw a capital shortfall of €200-billion ($284-billion) among European lenders.

The chief executives of Commerzbank, Société Générale and UniCredit will also set out their visions for the way forward in difficult terrain.

As the prospects recede for a near-term return of confidence, some major lenders — including Barclays, HSBC, Goldman Sachs, Credit Suisse and UBS — have begun to slash tens of thousands of high-paying financial sector jobs.

The chief executive of JP Morgan’s investment bank, Jes Staley, will give the view from the other side of the Atlantic.

Deutsche’s Ackermann may also face questions over a report that securities packaged by his bank are among half a dozen deals being examined by Britain’s Serious Fraud Office (SFO). — Reuters