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Bailing out Deutsche Bank would be a terrible decision for Angela Merkel
(German Chancellor Angela Merkel waves as she attends a session of the lower house of parliament Bundestag in Berlin, January 19, 2012.Fabrizio Bensch/Reuters)
Deutsche Bank hasn't had an easy few days.
But that doesn't mean German Chancellor Angela Merkel will be coming to the rescue.
Two weeks ago it was reported that the troubled German lender might be slapped with fines worth $14 billion by US regulators over bad derivative products from the financial crisis. Shares plunged to record lows in the aftermath.
Plus, Bloomberg reported this week that about 10 hedge funds have moved to limit exposure to the bank and have withdrawn funds, fearing that the bank could collapse under the weight of proposed fines. Again — shares plummeted.
In the midst of all this, there have been rumors that the German government might be preparing a bailout for the country's biggest lender.
However, the German finance ministry flatly denied this possibility. And that makes sense, given Merkel's delicate political position.
It's "inconceivable" that Merkel would bailout the troubled lender given domestic tensions and her political situation, Eurasia Group managing director Mujtaba Rahman told Business Insider by phone.
Pouring public money into a private bank likely wouldn't be the most popular decision with voters at home, who are already displeased with Merkel's unwavering stance on the refugee crisis, ahead of 2017 federal elections. Notably, Merkel's Christian Democratic Union (CDU) party already took a hit in early September regional elections in her home district, while the anti-immigrant Alternative für Deutschland (AfD) party saw some gains.
Moreover, Merkel is also vulnerable with the more right-leaning members of her party, as well as with Bavaria's conservative Christian Social Union (CSU) party, which has traditionally cooperated with the CDU in elections. The CSU has been pushing for caps of 200,000 refugees a year, to which Merkel has not yet acquiesced, and now there have been reports that some CSU folks might not be willing to support Merkel come 2017.
In short, bailing out the bank could "expose her to criticism on the right flank," Rahman told BI.
So don't expect it anytime soon.
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