Deutsche Bank’s share price is in free fall after attempts to calm speculation about the finances of Germany’s largest bank backfired.
This came as financial markets endured another nervous day, with European shares losing ground and the Dublin market down 0.5 per cent, having recovered in late trading.
The German bank is now reportedly considering buying back several billion euro of its debt, as it steps up efforts to shore up the tumbling value of its securities, against the backdrop of a broader rout of financial stocks.
After European banks suffered a second consecutive day of sharp falls, Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about €50 billion in issue, according to the bank.
The move is unlikely to involve so-called contingent convertible bonds which, along with the bank’s shares, have been the butt of a brutal investor sell-off in recent days, according to sources.
Chief executive John Cryer issued a statement on Monday insisting the Frankfurt-based bank was “rock solid”.
But shares started to fall in early trading on Tuesday and kept going down.
Shares in the bank have dropped by nearly 40 per cent so far this year over fears that it won’t have enough cash to meet all repayments due to investors.
In his note, Mr Cryer said these fears were misplaced, but acknowledged that volatility on the stock markets was having an impact on earnings.
"Volatility in the fourth quarter impacted the earnings of most major banks, especially those in Europe, " he said, but Deutsche "remains absolutely rock-solid, given our strong capital and risk position".
German finance minister Wolfgang Schäuble gave his backing on Monday,saying: “No I have no concerns about Deutsche Bank.”
Those words were cold comfort to investors in Frankfurt, where the Dax blue-chip index has already caught cold and speculation about the bank has made a bad situation worse.
Deutsche Bank shares were among the biggest losers in trading yesterday, shedding 4.3 per cent to close at €13.23.
By comparison, the shares were trading at an average of €25 last year.
Record losses
After record losses of €6.8 billion for 2015, markets are already concerned about Deutsche Bank’s ballooning legal bill.
The bank is facing around 6,000 different litigation cases, according to one German source, with many cases relating to its activities before and during the financial crisis.
Now traders have been unsettled by the bank’s attempts to reassure markets of its ability to pay coupons due to investors in April on CoCo bonds – effectively a junior bond.
While much of the focus was on Deutsche Bank, European markets lost more ground after Monday’s heavy falls, with the FTSE 100 in London dropping 1 per cent and European shares on average down 1.5 per cent.
The ISEQ in Dublin staunched its rate of losses somewhat, down only 0.5 per cent on the day, but it still capped off its worst six-day slump since the depths of the recession in 2011.
Trading was heavy in Dublin, with more than €500 million worth of shares changing hands, higher than in previous days.
Bank of Ireland tracked other European banks, falling 2.75 per cent, although it was down 7 per cent during the afternoon. Smurfit Kappa was down about 4 per cent ahead of its results on Wednesday.
Among the better performers in Dublin were Ryanair, up 2.2 per cent, and insulation group Kingspan, up 4.6 per cent.
Across Europe financial stocks were hit hard, with Credit Suisse falling 8 per cent and UniCredit 7 per cent.
IN New York last night US shares ended fractionally lower after a day of choppy trading. The Dow Jones Index lost 0.08 per cent.
– (Additional reporting Financial Times)
