Fresh fears hit Deutsche Bank share price

Shares slump 3% on NYSE after renewed doubts over Germany’s biggest bank’s ability to pay US penalty

Uncertainty about the size of a penalty for a decade-old misselling scandal knocked shares in Deutsche Bank lower on Monday amid renewed doubts about the ability of Germany’s biggest bank to withstand the cost of any settlement with the US Department of Justice (DoJ).

With Germany’s stock market closed for a public holiday, its shares traded lower in New York as a stock research firm warned that Deutsche might want to tap shareholders for more cash in the wake of a fine. The bank’s shares had surged on Friday following reports that the settlement with the DoJ would be $5.4bn (£4.2bn) rather than the $14bn first suggested a fortnight ago.

However, the absence of further news rattled US investors on Monday and Deutsche shares had fallen 3% by the time European markets were closing.

Speculation about the prospect of a deal with the DoJ over the misselling of residential mortgage-backed securities (RMBS) between 2005 and 2007 has been fuelled by the plans of John Cryan, Deutsche’s chief executive, to attend the International Monetary Fund’s annual meeting in Washington DC. This is regarded as an opportunity to thrash out a settlement ahead of the US general election next month.

But as Cryan prepared to attend the high-profile gathering he faced criticism from Germany’s minister for economic affairs, Sigmar Gabriel, for blaming speculators for the dive in the bank’s shares to 30-year lows.

“I did not know if I should laugh or cry that the bank that made speculation a business model is now saying it is a victim of speculators,” Gabriel said.

He was responding to the memo Cryan sent to 100,000 employees on Friday blaming “forces in the market” for destabilising the bank. Cryan is in the process of restructuring the bank and, according to reports, is close to achieving the agreement with local unions to cut 1,000 jobs.

Cryan has insisted that he does not need the help of the German chancellor, Angela Merkel, to prop up the bank, which has lost more than half its value on the stock market this year and is regarded by the IMF as the world’s riskiest bank.

A research note by brokers at Autonomous, cited by Bloomberg, said investors regarded a rights issue – a cash call on existing shareholders – as the “most likely tool management will use” to bolster market sentiment.

But the ratings agency Moody’s said it regarded any deal with the DoJ as more likely to knock profits rather than undermine its financial strength. Peter Nerby, senior vice-president at Moody’s, calculated that Deutsche could face a settlement of between $1.1bn and $5.7bn by analysing the size of agreements the DoJ has reached with US banks.

Even at the higher end, Nerby said: “This would require an addition to our assumed DoJ settlement reserve of €2.4 bn, which would dent 2016 profitability but would not significantly impair its capital position.”

Friday’s report by the news agency AFP that Deutsche might pay $5.4bn helped bolster its shares, although the Wall Street Journal cautioned on Monday that neither the DoJ or Deutsche had yet agreed on a deal.

Deutsche is one of a number of European banks – including Barclays and Royal Bank of Scotland – that face settlements with the DoJ. RBS, which could face a bill of £9bn from the DoJ, is in the process of tackling as many as 20 lawsuits relating to the matter. On Monday, the state of Connecticut said the 73% taxpayer-owned bank had agreed a $120m settlement over misselling RMBS.


Jill Treanor

The GuardianTramp

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