Deutsche Bank pressure eases on fine forecast
HEAVY market pressure on Deutsche Bank eased as a US fine over toxic debt the bank sold is expected to be only US$5.4 billion and not the $14 billion originally demanded.
A person familiar with the talks between Deutsche Bank and the Department of Justice said an agreement could come in the next few days to settle charges that the bank knowingly sold high-risk mortgage securities ahead of the 2008 financial crisis.
The final amount of the settlement could also be slightly different, said the person, who spoke on condition of anonymity.
The news powered the shares of Germany’s biggest lender dramatically higher as worries ebbed about its stability under the pressure of a potentially massive US fine.
US-traded shares of the bank finished up 14 percent at $13.09, while in Frankfurt, in part due to different market hours relative to the timing of the news, shares added 6.4pc at 11.57 euros.
Deutsche Bank and the Justice Department declined to comment on the news of a deal, as did the German finance ministry.
But worries about the impact of the case on Deutsche Bank had spread through markets and into the political realm over the past week, unnerving investors.
Adding to the concerns were conflicting reports in German media on whether Berlin would come to the troubled bank’s aid if necessary.
Deutsche Bank chief executive John Cryan managed to lift the mood with a letter to staff insisting the bank was not at risk.
“At no time in the last two decades has Deutsche Bank been as safe as it is today,” Mr Cryan wrote.
“In a situation like this, the most important factor is our liquidity reserves. Currently they still amount to more than 215 billion euros [$241.7 billion],” he said.
The bank has suffered for months from perceptions of a weak capital base. In June it flunked the US Federal Reserve’s stress test.
A month later Deutsche was among the worst performers in a European Banking Authority stress test, although Cryan insisted the exercise had demonstrated the institution’s resilience to future crises.
A settlement with US authorities of $5.4 billion would be just shy of the total Deutsche Bank has set aside in provisions for outstanding legal actions.
CMC Markets analyst Jasper Lawler said that improved match of figures “may make a rights issue more palatable and makes a government bailout much less likely”.
Still, the US toxic mortgage-securities case is just one of 8000 legal challenges burdening Deutsche Bank. An investigation by New York regulators over allegations of money laundering at its Moscow office looms. –