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As Deutsche struggles, German lawmakers say no more help for ailing banks

A man walks past Deutsche Bank offices in London

Germany will not help ailing lenders such as Deutsche Bank, senior lawmakers in Chancellor Angela Merkel’s conservative bloc said on Thursday, as resistance grew to any possibility of staging a rescue.

With Merkel meeting European Central Bank chief Mario Draghi on Thursday, Berlin has already flatly denied it is planning any repeat of the taxpayer-funded bailouts that Germany and other Western countries mounted during the global financial crisis.

This followed a newspaper report earlier in the week that the German government had made provisional plans to rescue Deutsche, which is fighting a fine of up to $14bn from the US Department of Justice.

Concerns over the stability of Germany’s biggest bank have pushed its shares to record lows. But Eckhardt Rehberg, parliamentary budget spokesman for the conservatives, signalled that he would oppose any support.

“At the present time I would rule out any capital help. That would not be the right way to go,” he told Reuters, echoing similar comments by Hans Michelbach, who heads the conservatives in the parliamentary finance committee.

A spokesman for the ECB declined to comment on the topics that Merkel and Draghi discussed in Berlin on Thursday. “They are talking about the euro area economy,” he said.

The lawmakers’ remarks indicate a reluctance among politicians to back a group disliked by many Germans because of its pursuit of investment banking abroad that resulted in billions of euros of penalties for wrongdoing.

As Germany prepares for national elections next year, Merkel’s popularity has sunk because of her open-door policy for migrants. Were Deutsche Bank to require state help, her standing as the chancellor who successfully steered Germany through the financial crisis could also be called into question.

Deutsche got through the global crisis without state aid, but Commerzbank, Germany’s second biggest lender, needed an €18.2bn bailout in 2008 and the state still holds a 15 per cent stake. Commerzbank will cut more than a fifth of its workforce and suspend its dividend to tackle low interest rates, weak profits and a shift to online banking.

TICKING TIME BOMB

Earlier, Sahra Wagenknecht, a prominent member of the opposition far-left Linke party, blamed the government for putting “a ticking time bomb in the lap of the taxpayer”.

Norbert Spinrath, a lawmaker from the Social Democrats (SPD), the junior partners in Merkel’s coalition, struck a more conciliatory tone about Deutsche, an issue he said had been discussed informally in the ‘corridors’ of the capital. “The mood is composed,” he said. “We will have to figure it out.”

The problems of Deutsche, once Germany’s flagship on Wall Street, are awkward for Berlin which has berated many euro zone peers for economic mismanagement and pushed for countries such as Ireland and Greece to cope with their banking problems alone.

Deutsche is disputing US plans to impose the fine over the misselling of mortgage-backed securities. The plunge in its shares has prompted speculation about who could help the bank were it to run short of funds.

Rehberg steered clear of criticising the US authorities over the fine, saying: “Deutsche Bank has created its own problems.”

But fellow conservative lawmaker Joachim Pfeiffer expressed concern. “A legal battle is very difficult,” he said. “If we debate this publicly, it will be harder to reduce the penalty.”

Nonetheless, he added: “Capital support for Deutsche Bank is not an issue.”

Austrian finance minister Hans Joerg Schelling also sought to play down fears over Deutsche, saying the case could not be compared with Lehman Brothers, the US investment bank whose collapse in 2008 sent shock waves around the world.

“We have all the measures in place at a European level to stabilise financial markets,” he told Reuters.

BOOM YEARS

Like many of its peers, Deutsche has faced a series of lawsuits that often trace back to the boom years before the crash. Its litigation bill since 2012 has already hit more than €12bn.

Claims filed by individuals, companies and regulators against Deutsche, outlined in the bank’s 2015 annual report, relate to misselling of subprime loans and alleged manipulation of foreign exchange rates or gold and silver prices.

Other lawsuits are for the rigging of the borrowing benchmarks Libor and Euribor, used to set the price of mortgages and derivatives.

In July the bank only scraped through European stress tests – designed to gauge its ability to withstand a crisis – and has warned it may need deeper cost cuts to turn itself around.

Michelbach also reiterated his criticism of the ECB’s ultra low interest rates, a policy blamed by banks for their meagre profits.

Draghi rebuffed such claims, when answering questions from reporters. “If a bank represents a systemic threat for the eurozone, this cannot be because of low interest rates,” he said

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