Deutsche Bank shares suffer 8% hit

Deutsche Bank’s shares and its riskiest bonds dropped the most since the Brexit vote yesterday after the lender said the US Justice Department is seeking $14bn (€12.55bn) to settle a probe tied to mortgage-backed securities, more money than the bank is willing to pay.

“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement yesterday.

“The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

Chief executive John Cryan, has struggled to boost profits by selling risky assets and eliminating jobs as legal probes and claims add to concerns that the lender will be forced to raise capital.

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 data compiled by Bloomberg.

“While this number seems very large, it’s obviously a first negotiation point. There’s going to be an awful lot of management time spent on it to get to a sensible number,” Chris Wheeler, an analyst at Atlantic Equities, told Francine Lacqua on Bloomberg Television.

Deutsche Bank fell up to 8.8%, the biggest intraday drop since June 27, and was down 8.7% at €11.96 yesterday afternoon in Frankfurt.

Other European lenders under investigation over residential mortgage-backed securities also declined, with UBS Group down 2.9% and Credit Suisse Group slipping 5.2%. Royal Bank of Scotland Group Plc slumped 4.5%, while Barclays Plc fell 2.8%.

The bank’s €1.75bn of 6% additional Tier 1 bonds, the first notes to take losses, fell 5c to 78c on the euro, the biggest drop since the UK voted to leave the EU in June. Deutsche Bank’s £650 million pounds (€763m) of 7.125% notes fell 5p to 81p on the pound, also a record fall.

“They are dropping like a stone. The fine, even if reduced, could surpass all provisions held by the bank,” said Tomas Kinmonth, a credit strategist at ABN Amro Bank.

DOJ Negotiations Germany’s government expects a fair outcome in the US probe, a spokeswoman for the Finance Ministry in Berlin said yesterday.

Germany’s largest lender confirmed it had started negotiations with the Justice Department to settle civil claims over the bank’s issuing and underwriting of residential mortgage-backed securities from 2005 to 2007. The Wall Street Journal reported the $14bn claim on Thursday.

Bank of America Corporation paid $17bn to reach a settlement in a similar case in 2014.