Deutsche Bank shares dropped to a record low and its riskiest bonds declined after a media report said the German government would not step in to back the lender, fuelling investor concerns about its weakened finances.
The shares slumped 6% to €10.73 yesterday afternoon, bringing losses to about 52% this year.
The lender’s €1.75bn of 6% additional Tier 1 bonds, the first notes to take losses in a crisis, fell about 2c on the euro to 73c, near a seven-month low, according to data compiled by Bloomberg.
CEO John Cryan’s efforts to shore up profitability and capital, by cutting thousands of jobs and shrinking, have been put at risk by the US Justice Department requesting $14bn (€12bn) to settle a probe tied to residential mortgage-backed securities.
The amount, which Deutsche Bank has said it has no intention to pay, sparked concerns that the lender will be forced to tap investors, with Germany’s Focus magazine reporting that the government had ruled out any backing for the firm.
“Nobody believes that they will end up paying that amount, but for some investors it might be a concern that even the German government is discussing Deutsche Bank’s situation,” said Daniel Regli, an analyst at MainFirst.
“Clearly headlines around the Department of Justice settlement and the $14bn continue to weigh on the stock.”
Chancellor Angela Merkel has ruled out state aid for Deutsche Bank ahead of national elections in September 2017, Focus magazine reported, citing unidentified government officials.
The German leader also declined to step into the bank’s legal imbroglio with the Justice Department, the magazine reported.
Steffen Seibert, a spokesman for Ms Merkel, told reporters in Berlin yesterday that there are “no grounds” for speculation over state funding for Deutsche Bank, adding that the government expects a “fair result” in the lender’s talks with the Department of Justice.
The lender has already pushed back against the Department of Justice claims, saying that it has no plans to settle “anywhere near the number cited,” with negotiations at an early stage.
Responding to the Focus report, spokesman Jörg Eigendorf said in an emailed statement that Cryan had “at no point” asked Merkel for assistance.
The bank is “determined to meet challenges on its own” and the “question for a capital increase is currently not on the agenda,” he said.
The case concerns allegations that the bank misled investors about the quality of subprime mortgage bonds it created and sold during the US housing boom that led to the 2008 crisis.
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