Deutsche Bank in negotiations with US to reduce its $14bn US fine
DEUTSCHE Bank is moving closer to settling one of its biggest legal cases. How it manages to pay will depend on whether it can persuade the US to lower its initial request of $14 billion (R198bn), and by how much.
The shares of Germany’s biggest bank plunged on news that the Department of Justice (DOJ) is seeking an amount that is more than twice the €5.5bn (R86.8bn) Deutsche Bank has set aside for litigation.
Aside from the US probe into residential mortgage-backed securities, the lender also faces inquiries into matters including currency manipulation, precious metals trading and billions of dollars in transfers out of Russia.
Reaching a mortgage deal would clear a major hurdle for Deutsche Bank, which has paid more than $9bn in fines and settlements since the start of 2008, according to Bloomberg data. Still, JPMorgan Chase analysts said any agreement exceeding $4bn would raise questions about Deutsche Bank’s capital position.
“Deutsche Bank is going to be looking at other options it has,” Chris Wheeler, an analyst at Atlantic Equities, said on Bloomberg Television. “Maybe selling some of the assets it doesn’t want to sell, or maybe it can find further investors.”
The stock fell 8.5 percent in Frankfurt trading, erasing €1.5bn in market capitalisation. The bank’s €1.75bn of 6 percent additional Tier 1 bonds, the first notes that would take losses, fell 5 cents to 78 cents on the euro, the biggest drop since the UK voted to leave the EU.
No intent
“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early on Friday. “The negotiations are only just beginning.”
JPMorgan analysts wrote in a note to clients that a settlement range of $3bn to $3.5bn would leave the German lender room to settle other legal issues.
Estimate of fines and settlements Deutsche Bank has paid since 2008
Any additional $1bn in litigation charges would erode 24 basis points in capital, according to the note.
Analysts at Credit Suisse Group said Deutsche Bank might have to take another €3.8bn in provisions in the medium term.
Deutsche Bank was among the worst-capitalised lenders in European stress tests earlier this year. Chief executive John Cryan, who took over last year, already suspended the dividend to preserve capital and has repeatedly ruled out tapping investors.
The bank’s common equity Tier 1 ratio, a measure of financial strength, was set to edge higher in the second half from 10.8 percent at the end of June, helped by asset sales, Cryan said when the company published first-half results.
The German lender may be forced to sell large parts of its asset management business, including the US unit, or potentially raise equity if the DOJ fine exceeds about $7bn, according to bankers with knowledge of the firm.
Deutsche Bank has raised €31.7bn through three capital increases since the global financial crisis erupted.
Cryan said on September 12 that asset management was an “essential part” of the company.
The bank confirmed that it had started negotiations with the DOJ to settle civil claims the US might consider over the bank’s issuing and underwriting of residential mortgage-backed securities from 2005 to 2007. – Bloomberg