Deutsche Bank pres­sure eases on fine fore­cast

The Myanmar Times - - Business | International -

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. –

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