Credit rating downgrades of troubled bond insurers could trigger a potential financial “tsunami” that could be as far-reaching as the subprime mortgage crisis, the chief executive of Deutsche Bank warned Thursday. The alert by Josef Ackermann, made in an interview with Bloomberg, came as the banking sector continued to suffer fears that rating downgrades to bond insurers, or monolines could lead to another round of writedowns of investments and renewed capital constraints. If the monolines are downgraded, the bonds they insure fall in value. Ackermann forecast that the US would see a sharp economic slowdown but would avoid a recession “assuming no monoline tsunami hitting us”. But he added that the downgrades among the bond insurers could trigger a “tsunami-like event comparable to subprime’’, although he emphasized, Deutsche Bank was well placed to cope and that even a “meltdown” in the monoline sector would be “manageable” due to hedges on its exposure. The FT’s People column notes Thursday was also Ackermann’s 60th birthday – an occasion he used to rule out the idea of capping off his three decades in German banking, “an ageing experience itself”, with a big acquisition.
