Deutsche Bank shares fall to new low after another turbulent day

Bank denies it has asked for help from German chancellor Angela Merkel over potential $14bn US Department of Justice penalty

Deutsche Bank has endured another turbulent day on the stock market amid questions about its ability to pay a penalty to the US authorities and whether Angela Merkel will need to intervene in the plight of Germany’s biggest bank.

As shares in Deutsche Bank fell to fresh lows, the German chancellor was quoted by news agencies as saying: “Deutsche Bank is one part of the German banking and financial sector, and of course we wish all companies, even when they are experiencing temporarily difficulties, to perform well. Apart from this, I don’t want to comment.”

She had been asked whether she believed the German government should support Deutsche Bank, which has endured a torrid year on the stock market where its shares have fallen more than 50%. The latest slide began on Monday after the bank was forced to deny it had asked for help from Merkel over the potential $14bn (£10.5bn) penalty it faces from the Department of Justice over mortgage bond mis-selling a decade ago.

Deutsche Bank – which has insisted it does not need government help and has no intention of paying that sum – has also said it had enough capital although analysts said fears it would need to tap investors for funds was one of the reasons the shares were under pressure.

Following Monday’s 7.5% fall to levels last reached in the 1980s, the shares fell another 3% on Tuesday to €10.19 before ending the day on the Frankfurt stock exchange flat at €10.55.

The market is fixated on how the bank will tackle the negotiations with the DoJ and how large the penalty will eventually be. “If the DoJ’s fine is in the area of $6bn or higher, our view is that a capital raise will become necessary,” said Carlo Mareels, a credit analyst at stockbroker MUFG Securities.

“Equity investors are fearful they will have to be called upon to support the capital position of the ailing Deutsche Bank, as equity prices are down 64% since October 2015,” said Tomas Kinmonth at Dutch bank ABN Amro. “Their capital position needs to be improved, and the ability of it to achieve this naturally is being severely questioned. Significant restructuring, including major asset sales, will likely be needed if Deutsche Bank wishes to achieve an increased capital position without calling on shareholders,” said Kinmonth.

Deutsche Bank’s chief executive, John Cryan, is also selling off its Chinese bank, Hua Xia, but there are some suggestions that its asset management division could also be put on the block.

Some are pondering the wider ramifications. Paresh Davdra, co-founder of RationalFX, said the situation was rattling investors and raising parallels with the collapse of Lehman Brothers in 2008.

The German bank is not the only one facing discussions with the DoJ over the sale of the so-called residential mortgage-backed securities. Royal Bank of Scotland’s chief executive, Ross McEwan, told a conference on Tuesday that the bank had not yet begun discussions with the DoJ over the bailed-out bank’s possible settlement. Analysts have calculated this could reach £9bn.

Shares in RBS, 73% owned by taxpayers, fell 2.5% as McEwan also warned of “unchartered territory” if the bank failed to dispose of 600 branches mandated by the EU under the terms of its bailout. Other bank shares were also lower after another German bank, NordLB, postponed a bond issue.

Former chancellor Norman Lamont told the Institute of Directors conference that German banks were in a dangerous situation: “The biggest threat, I think, to Europe is the banking crisis. I think Italian banks are in a very serious situation; I think German banks are probably in a very serious situation, too.”

•This article was amended on Thursday 29 September to correctly assert that Deutsche Bank had insisted it does not need government help.


Jill Treanor

The GuardianTramp

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