Germany and Deutsche Bank rush to quash state aid rumours

berlin — The German government and Deutsche Bank were at pains on Wednesday to quash speculation of a rescue plan for the troubled lender, in an effort to reassure investors spooked by a potentially massive US fine.

The denials came after Deutsche’s share price sank to a record low this week on reports that Germany’s biggest bank had asked Berlin for help after US authorities demanded an unaffordable $14-billion fine over the subprime mortgage crisis.

State aid “is not on the table”, chief executive John Cryan told Germany’s biggest-selling newspaper Bild.

But investors were further rattled when news weekly Die Zeit on Wednesday reported that German and EU officials were working on an emergency plan for Deutsche “if the worst comes to the worst”.

Germany’s finance ministry swiftly shot down any talk of such a bailout. “The report is wrong. The government is not preparing rescue plans. There are no grounds for such speculation,” the ministry said in a statement.

The rapid-fire developments saw Deutsche shares rise more than 2.5 per cent in early afternoon trading to €10.8, making up some of the

Deutsche has been dominating business headlines ever since the US Department of Justice made its demand for the eye-watering fine earlier this month.

— AP ground lost in the last two sessions, while Frankfurt’s DAX 30 index was showing a gain of 0.9 per cent.

Uncertainty over the bank’s financial health had seen shares hit a record low on Monday, dropping 7.54 per cent to close at €10.55 ($11.80) and ending at the same level on Tuesday.

Deutsche has been dominating business headlines ever since the US Department of Justice (DoJ) made its demand for the eye-watering fine earlier this month.

If Deutsche is unable to negotiate the sum down to less than the $5.5 billion it has set aside for legal costs and fines, it could be forced to raise fresh capital on the markets, diluting the value of its shares. “We expect the DoJ will treat us just as fairly as the American banks” that have settled for much less in similar cases, Cryan insisted to Bild.

Eager to show investors it was working to clean up its balance sheet, Deutsche on Wednesday announced it had agreed to offload its British insurance set aside for legal costs and fines by Deutsche company Abbey Life to life insurer Phoenix Group for 1.1 billion euros, which will provide a slight boost to its capital buffer.

Cryan insisted to Bild that he had “at no point” asked Chancellor Angela Merkel for a rescue, adding that “I also didn’t hint at any such thing”.

But Die Zeit is to report on Thursday on plans by Berlin that “if the worst comes to the worst” to sell off parts of Deutsche Bank to other financial institutions, and could “in the most extreme emergency” buy a 25-per cent stake in the bank.

Some voices in the government favour involving the European Single Resolution Mechanism, set up in the wake of the financial crisis to prevent taxpayer bailouts of failing banks, the newspaper said.

In that case, creditors and customers would bear a share of the rescue costs — potentially creating fresh chaos on the financial markets. — AFP