Business World

Wednesday 7 December 2016

Deutsche Bank slide resumes as deal hopes fade

Georgina Prodhan, Kathrin Jones and Lawrence Delevingne

Published 04/10/2016 | 02:30

German lender will try to reach a deal with the US in Washington
German lender will try to reach a deal with the US in Washington

Deutsche Bank shares resumed falling yesterday after recovering from a record low at the end of last week, as hopes faded of a swift deal with US authorities over a multi-billion dollar penalty.

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The German lender is throwing its energies into reaching a settlement before next month's US presidential election, with the Department of Justice demanding a fine of up to $14bn (€12.4bn) for mis-selling mortgage-backed securities.

Its shares didn't trade in Germany yesterday because of a public holiday, but were down 2.8pc in the US by midmarket.

The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to help restore confidence in Germany's largest lender.

Domestically, Deutsche Bank is seeking to shore up confidence among the public, politicians and regulators who say the bank brought many of its problems upon itself by overreaching itself and then reacting too slowly to the 2008 financial crisis.

So far its had mixed results. German Economy Minister Sigmar Gabriel accused Deutsche Bank on Sunday of blaming speculators for last week's plunge in its share price when the bank had itself made speculation its business. "I did not know if I should laugh or cry that the bank that made speculation a business model is now saying it is a victim of speculators," Gabriel told reporters on a plane to Iran, which he is visiting with a business delegation.

German business leaders from companies including BASF, Daimler, E.ON, RWE and Siemens lined up to defend the bank in a front-page article in the 'Frankfurter Allgemeine' Sonntagszeitung.

"German industry needs a Deutsche Bank to accompany us out into the world," BASF chairman Juergen Hambrecht said.

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 IMF identified it as a bigger potential risk to the wider financial system than any other global bank.

Deutsche chief executive John Cryan will be in Washington this week for the annual meeting of the IMF, and it was the reported that other executives would join him to try to negotiate a settlement with the US authorities.

Like fellow large European banks also under investigation for mis-selling mortgage-backed securities - Credit Suisse and Barclays -Deutsche will want to get a deal done with the current administration still in power.

A new administration to be installed after the November 8 election will bring unknown risks and likely delays.

If the fine is left to stand, the bank, with a market capitalisation of €15.9bn would almost certainly have to raise capital. (Reuters)

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