A defensive Deutsche Bank battled a massive share sell-off on Monday amid speculation over the financial health of Germany's biggest financial institution, facing a $14 billion (€12.4 bn)fine in the US.
Doubts about the Frankfurt bank's ability to pay that bill, arising from an investigation into mis-selling of mortgage-backed securities, gained momentum on Monday with a report that Berlin had ruled out offering any assistance to the bank.
The report in Germany's Focus magazine merely restated what has been Berlin's policy for weeks – not to intervene in the US investigation – but was enough to send investors running for the hills.
Monday’s sell-off saw shares fall to their lowest level since the 1980s, lower than during the banking crisis and down some 50 per cent this year. Shares closed on Monday at €10.55. Last October the shares were €27.975.
Defensive mode
That in turn forced Deutsche officials onto the defensive – and into the media – insisting that the bank would fight the $14 billion fine (close to its $18 billion market capitalisation) and that it had neither asked for – nor needed – political assistance from the Merkel administration.
Jörg Eigendorf, bank spokesman, told CNBC that chief executive John Cryan had "at no point" asked chancellor Angela Merkel to intervene on the bank's behalf with US authorities and had no plans to do so.
“Deutsche Bank is determined to meet the challenges on its own,” he said, ruling out any kind of German bailout. With speculation of a looming capital increase driving down the share price further, Mr Eigendorf insisted such a move was “not a question for us right now”.
Berlin sources confirmed Mr Cryan had met the German leader in July but claimed the two had not discussed the securities investigation.
German government spokesman Steffen Seibert said chancellor Merkel regularly met business leaders but said Berlin "won't participate in any speculation . . . there are no grounds for such speculation".
“The German government is broadly aware that the US justice department has, in the past, reached agreements with other financial institutions about compensation payments,” said Mr Seibert, saying Berlin expected “fair treatment and a fair outcome” in this case.
US demand
The $14 billion demand from the US Department of Justice relates to claims the Frankfurt-based bank mis-sold mortgage-backed securities before the 2008 financial crisis. The demand, made public earlier this month, shocked financial markets after Deutsche said it expected a fine in the region of $3 billion. Last July, Deutsche only scraped through the European bank stress tests and has warned it may need further cost cuts to achieve a turnaround.
The renewed Deutsche speculation pulled down other European lenders on Monday, with Santander, Lloyds and Barclays all down three per cent.
German analysts say that it is unlikely Deutsche Bank can avoid a capital hike to shoulder the fine and that, despite its hands-off utterance, Berlin is unlikely to let the Frankfurt bank fail.
