“All eyes are naturally focused on the specific problems of Deutsche Bank, but Deutsche is in truth no more than the canary in the coal mine. As Tidjane Thiam, chief executive of Credit Suisse, observed last week, as an entire sector, European banks are still “not really investable”. Much the same disease as afflicts Continental banks also applies to British counterparts, including Royal Bank of Scotland, Barclays and even Lloyds.
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The Department of Justice is hoping to secure a giant omnibus settlement involving Deutsche, Credit Suisse and Barclays all rolled into one, timed for announcement just ahead of the presidential election. It’s Royal Bank of Scotland’s turn next — not good given that its exposure to the sub-prime debacle was even larger than Deutsche Bank’s.
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What all this will do, however, is cause banks further to contract their balance sheets, perpetuating the wider economic impact of the crisis.