October 4, 2011
Germany's Deutsche Bank issued a profit warning on Tuesday and a Franco-Belgian bank wobbled signficantly as Greek debt begins to drag significantly on Europe's financial industry. The European Central Bank is expected to make emergency credit available this week for the first time since the Lehman collapse.
For months, financial experts have been warning that Europe needs to act quickly to shore up banks on the Continent due to their heavy exposure to Greek debt. This week, there are increasing signs that their dire prognostications may be correct.
Deutsche Bank on Tuesday said in a statement that the company's earnings targets for 2011 were no longer realistic and that third quarter results were well behind expectations. CEO Josef Ackermann, who is set to vacate his current post next May, had hoped to earn a record pre-tax profit of €10 billion ($13.27 billion) this year. But the bank was forced to write down €250 million in Greek debt in the third quarter after similar write downs of €155 million in the second.
In addition, share prices for stock in the Franco-Belgian bank Dexia plunged on Tuesday, the most recent symptom of its significant holdings of Greek debt. The stock dropped by as much as 38 percent on Tuesday as officials in Belgium and France struggled to come up with a plan to prevent it from collapsing altogether.
The news also led to a general fall in European bank share prices which dragged down European and global markets on Tuesday.
The problems at Dexia, and the profit warning from Deutsche Bank, come as a result of a private sector agreement to contribute to efforts to bail out Greece. As part of the new, €109 billion Greek bailout fund tentatively agreed to in July, private sector creditors agreed to a 21 percent debt discount. Dexia this year has already written down €338 million to cover that pledge.
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