Deutsche Bank AG shares jump on settlement report

Deutsche Bank AG jumped the most in almost six months after a media report that the lender is nearing a $5.4bn (€4.81bn) settlement with the US Department of Justice (DOJ), less than half the amount initially requested.

Deutsche Bank AG shares jump on settlement report

The shares closed at €11.57, up 6.4%, the biggest gain since April. Agence France-Presse reported that the lender is nearing a settlement with the DOJ in a probe tied to residential mortgage-backed securities, citing an unidentified person familiar.

Spokesmen for the Frankfurt-based lender and the DOJ declined to comment when contacted by Bloomberg News.

Deutsche Bank’s stock and debt have been under pressure after the DOJ last month requested $14bn to settle an investigation into residential mortgage-backed securities.

“The amount would be very good news, below what consensus expects now,” said Jerome Legras, an investor at Axiom Alternative Investments, who holds a short position on the lender.

“Deutsche Bank has dropped so much as there is so much speculation circulating — at some point people just want to make a profit on short positions.”

Analysts at JPMorgan Chase & Co wrote in a note to clients earlier this month that a US settlement of $3bn to $3.5bn would leave the German lender room to settle other legal issues. Any additional $1bn in litigation charges would erode capital by 24 basis points.

The bank’s common equity Tier 1 ratio stood at 10.8% at the end of June.

In a memo to staff yesterday, chief executive John Cryan said he is taking DOJ settlements with other banks “as a benchmark”, echoing previous remarks that he expects US authorities to scale back their initial request.

Ms Cryan rushed to shore up confidence in his beleaguered lender after concern some clients are reducing exposure to the company pushed the shares to record lows earlier yesterday.

The bank’s balance sheet is safer than at any point in the past two decades, Mr Cryan told staff in a memo yesterday.

“Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust,” he said.

Analysts also came to the bank’s defence. Stuart Graham at Autonomous Research LLP wrote that Deutsche Bank has enough readily available funds on hand to weather more than two months of severe stress, including trading clients pulling back. Goldman Sachs Group analysts led by Jernej Omahen said the lender can also access backstops from the European Central Bank.

“Deutsche has many problems, but liquidity is not one of them,” Mr Graham said in a note.

“There can be no doubt that Deutsche could access significant additional liquidity from the ECB, should it ever need it.”

Deutsche Bank has long struggled to adapt to an era of tougher capital requirements and diminished trading revenue. Mr Cryan has already said that the lender may fail to be profitable this year, calling it a peak restructuring year, as he eliminates thousands of jobs and cuts risky assets.

The shares had been pushed to a fresh record low earlier yesterday after Bloomberg News reported that some hedge fund clients had reduced their financial exposure to the bank.

Deutsche Bank has lost about 49% of its market value this year.

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