Eurogroup chief Jeroen Dijsselbloem has said that US fines on European banks such as Deutsche Bank were eroding the stability of the European finance system.
Deutsche Bank is now trying to negotiate down a threatened $14 billion fine from the US Department of Justice, and raise capital from Germany’s blue chip companies to avoid collapse.
Deutsche Bank’s total value based on its market capitalization or stock price is just $18 billion, although the stock price has been gyrating wildly recently, just 25% more than the fine.
A report Thursday in German newspaper Handelsblatt said that the bosses of several of the country’s blue-chip companies have discussed the buying Deutsche Bank shares and offer a capital injection if needed, sending the share price higher.
Two leading hedge funds which made big bets on Deutsche Bank shares falling are now reducing their “short” positions, in a sign that hedge funds fear they could be badly burned in their bets to destroy the bank.
Dijsselbloem has criticised the heavy fines from the USA while admitting some kind of fines were justified.
“In the last couple of years, if you add up all the fines that the American authorities have put on European banks, it takes away a lot of the new capital that European banks have pulled in,” he told CNBC television in an interview. “I think it’s becoming a risk and I think we should discuss it.”
Since the financial crisis, European Banks have worked hard to raise capital in markets to strengthen their foundations, he said.
“We’re in the process of strengthening our banks,” he added. “And here comes the American authority that says, ‘Oh, you collected new capital, we’ll take that out as a fine.'”
The attack on Deutsche Bank by hedge funds and the gigantic fine from the Department of Justice have been condemned by German politicians as part of an economic war against the country.
The threat to force Deutsche Bank to pay a $14 billion fine over its mortgage-backed securities business before the 2008 global crisis “has the characteristics of an economic war.”“Extortionate damages claims” in the case are an example of that, a German politician has said.