Monday 5 December 2016

Deutsche Bank says it has €215bn in reserves after shares hit new low

Andreas Kröner and Maiya Keidan

Published 01/10/2016 | 02:30

John Cryan, chief executive officer of Deutsche Bank
John Cryan, chief executive officer of Deutsche Bank

Deutsche Bank's chief executive sought to reassure his staff yesterday that Germany's largest lender remained robust after its shares again fell to record lows, sending tremors through global financial markets.

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Deutsche, which employs around 100,000, has been engulfed by crisis after a demand for up to $14bn (€12.4bn) earlier this month from the US authorities for mis-selling mortgage-backed securities.

Shares recovered late in the day, on reports the fine will be knocked down to $5.4bn. But the situation remains tense.

The German government this week denied a newspaper report that it was working on a rescue plan for the bank.

Chief executive John Cryan's letter, seen by Reuters, addressed reports of the departure of a few hedge fund clients, blaming unfounded speculation and "certain forces" that wanted to weaken trust in the bank.

People familiar with the matter told Reuters that one large hedge fund in Asia had pulled out collateral from Deutsche amounting to $50m in the last two days, while other sources said this had happened elsewhere, albeit on a small scale.

Mr Cryan sought to put the moves into perspective. "We should look at the complete picture," he said in the letter to workers, adding that Deutsche had more than 20 million customers and reserves of more than €215bn. We are and remain a strong Deutsche Bank."

Deutsche is much smaller than Wall Street rivals such as JPMorgan and Citigroup.

But it has significant trading relationships with all of the world's largest finance houses and the International Monetary Fund this year identified it as a bigger potential risk to the wider financial system than any other global bank.

Worries over a major bank in Europe's largest economy and talk of a government rescue have stirred painful memories of the 2007-2009 financial crisis.

Germany elections next year mean there is little political appetite for any bailouts. Deutsche shares traded below €10 each yesterday, a record low. Its risky so called 'CoCo' bonds slumped to a record low too, a signal investor fear they could be converted into shares.

"It doesn't matter whether the bank is in real trouble or not, as long as people think it is, then it is bad news," said Rabobank markets strategist Lyn Graham-Taylor.

The problems of Deutsche, once Germany's flagship on Wall Street, are awkward for Berlin, which has berated many Eurozone peers for economic mismanagement and pushed for countries such as Ireland and Greece to cope with their banking problems alone. Alberto Gallo, a partner and portfolio manager with hedge fund Algebris Investments, shared that view.

"Deutsche Bank is faced with a business model profitability issue, not a solvency issue," he said. "It will take a long time to fix the business model, but that's not the same as solvency."

Irish Independent

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