Three awful announcements of new losses from Bank of America, Royal Bank of Scotland and Deutsche Bank cratered bank share prices in the US, UK and continental Europe in January. The sheer scale of the loss at RBS plus the talk of looming full nationalization and the unseemliness of the circumstances at Merrill Lynch diverted attention from Deutsche Bank. But its losses are perhaps the most disheartening of the three.
By the low standards of a humbled industry, Deutsche Bank had had a good credit crunch until its January update on the fourth quarter of 2008. It had spotted the sub-prime mortgage crisis early in 2007, avoided the worst itself and even won plaudits for advising clients of the dangers. True, it had stored up problems in leveraged loans but had been working through these, riding its luck as some acquisitions whose finance it had underwritten were cancelled.
Chief executive Josef Ackermann had spoken thoughtfully of a new approach to compensation, of mechanisms for portions of this to be withheld pending longer-term outcomes for bank shareholders. And he had rightly implied that anyone at Deutsche unhappy at this might pause to consider that the lower scale of redundancies at the bank might be a bonus in its own right.