Deutsche Bank endures turbulent day on the markets amid speculation it could slash $14bn fine
DEUTSCHE Bank ended another rollercoaster day on the stock market with a sudden share price surge yesterday amid hopes the beleaguered lender was close to agreeing a much smaller than expected $5.4bn (£4.2bn) fine with the US Department of Justice.
Shares in Europe’s biggest bank jumped 6.4pc to close up €11.57 in Frankfurt, their biggest one-day rise since April, on speculation the $14bn charge the DoJ proposed last month to settle an investigation into the mis-selling of mortgages securities would be more than halved.
It came at the end of another dramat- ic day for the German bank in which its British-born boss, John Cryan, intervened to reassure employees and restore confidence in the lender. Shares in the bank had earlier plunged as much as 9pc to below €10, their lowest since the 1980s, amid fears that clients were starting to abandon the lender.
Its stock dropped after it emerged on Thursday night that about 10 hedge funds had withdrawn some cash to trim their exposure to Deutsche, sparking concerns other clients could follow suit, exerting even greater pressure on the bank. The cost of insuring Deutsche’s debt against default using credit default swaps also surged.
Those market moves prompted Mr Cryan to issue a memo to staff insisting that the bank had an “extremely comfortable” buffer of liquid assets and remained “strong”. He wrote: “Ongoing rumours are causing significant swings in our stock price. It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”
His reassuring comments, which appeared to blame short-sellers for the lender’s woes, helped Deutsche’s shares pare their losses during the afternoon. The stock then jumped in the final minutes of trading following reports that the bank was close to a set- tlement with the DoJ. A Deutsche spokesman declined to comment, and analysts noted that some traders were keen to close positions ahead of a German market holiday on Monday.
The spectre of a $14bn fine for misselling in the run-up to the financial crisis was the catalyst for the crisis, because such a sum would dwarf the $5.5bn the lender has so far set aside for lawsuits and penalties.
The bank has been forced to deny it was seeking a government rescue, which would be very difficult under EU rules anyway. Jeroen Dijsselbloem, the Eurogroup president, yesterday insisted that Deutsche must survive “on its own”, without resorting to a bailout.