Deutsche Bank, Commerzbank Face Collateral Damage From Greensill

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The insolvency of Greensill Bank may cost Deutsche Bank AG and Commerzbank AG dearly over the next few years.

Germany’s two biggest lenders face having to make the largest payments to replenish Germany’s deposit-insurance funds as a result of compensation to depositors after the winding down of Greensill Bank, Commerzbank Chief Executive Officer Manfred Knof said at a conference late Tuesday. Along with UniCredit SpA’s German unit HVB, the two are the largest contributors to the funds, he said.

The German financial watchdog BaFin said on Tuesday that the deposit-insurance funds must compensate depositors of the Bremen-based Greensill Bank after the parent company, owned by financier Lex Greensill, collapsed earlier this month. The need to refill the insurance funds widens the collateral damage from the unraveling of the trade finance company to institutions like Deutsche Bank and Commerzbank who say they had no direct exposure to Greensill.

Spokesmen for Deutsche Bank and HVB declined to comment.

Deutsche Bank flagged higher contributions to deposit insurance funds as a key risk in its annual report published last week.

The specter of rising contributions to deposit insurance comes on top of potentially higher fees to be paid to Europe’s bank resolution fund. Deutsche Bank has assumed falling contributions to that pot in the cost forecast it delivered in December last year.

Insured Deposits

Greensill Bank has about 3 billion euros ($3.6 billion) of insured deposits, about a third of which will be covered by a compulsory insurance fund while a voluntary fund will cover the other two thirds, a person familiar with the matter has said. The compulsory fund had 3 billion euros in it at the end of 2019, according to data from the European Banking Authority, meaning the Greensill Bank payout will eliminate about a third.

How much contributions rise also depends on what the funds can rescue from Greensill Bank, with historic recovery rates usually ranging above 50%, a person familiar has said. However, the voluntary fund expects to recover less than that in this case and the amount also depends on how much the trade insurer Tokio Marine Holdings Inc. will agree to cover, a person familiar with the matter has said.

In any case, the funds aren’t likely to get money back from Greensill Bank any time soon. The insolvency proceedings could last 5 to 10 years, the administrator, Michael Frege, said in an interview with the German weekly WirtschaftsWoche on Tuesday.

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