The struggles of Deutsche Bank are a clear indication that negative rate policies are hugely damaging for the financial system rather than aiding a recovery, according to Jeffrey Gundlach.
Gundlach, who oversees billions of dollars in bonds at DoubleLine Capital, was speaking at Grant’s Fall 2016 Investment Conference in New York when he tackled the issue of negative rates.
In comments reported by Bloomberg, Gundlach said the German group’s significant share price collapse and poor recent stock market performance was strongly intertwined with negative interest rate policies in Europe.
‘You cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Banks’ stock price. If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks,’ he said.
The share price of Deutsche Bank hit a seven-year low last year, dropping from €31 ($34) per share on July 31 to €10.3 ($11.51) per share on September 30. This followed early slumps caused by January’s report of a fourth quarter net loss of €2.1 billion and a full year net loss of €6.8 billion ($7.6 billion).
Gundlach said the bank was unlikely to be allowed to fail, with the German government likely to step in as a back-stop. However, he said there was vulnerability in the region as a whole and singled out Credit Suisse as another potential weak spot.
‘Deutsche Bank will be supported by Germany if push comes to shove. But what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?’
In separate comments from the presentation, Gundlach was quoted as saying investors become increasingly alarmed when ‘big banks’ begin trading in single digits.