Date
21 October 2017
The US Justice Department has asked Deutsche Bank to pay US$14 billion to settle a probe tied to residential mortgage-backed securities. Photo: Reuters
The US Justice Department has asked Deutsche Bank to pay US$14 billion to settle a probe tied to residential mortgage-backed securities. Photo: Reuters

Deutsche Bank shares slump on concerns over financial health

Shares of Deutsche Bank AG dropped to a record low amid concerns about the health of its finances.

The shares slumped 6 percent in Monday afternoon trading in Frankfurt, bringing losses to about 52 percent this year, Bloomberg reports.

Chief executive John Cryan has been trying to shore up profitability and capital by cutting thousands of jobs and shrinking.

But his efforts have been put at risk by the US Justice Department requesting US$14 billion to settle a probe tied to residential mortgage-backed securities, the report said.

The amount, which Deutsche Bank has said it has no intention to pay, sparked concerns that the lender will be forced to tap investors.

Meanwhile, Germany’s Focus magazine, citing unidentified government officials, reported that the government has ruled out state aid for the company.

Chancellor Angela Merkel has also declined to step into the bank’s legal imbroglio with the Justice Department, the magazine reported.

“Of course they can’t easily raise capital ahead of a settlement and ahead of being able to tell investors a number that the settlement might cost them,” said Otto Dichtl, a fixed-income analyst at brokerage Stifel Nicolaus Europe Ltd., told Bloomberg Television.

“It’s basically a waiting game.”

A settlement range of US$3 billion to US$3.5 billion for residential mortgage-backed securities would leave the bank room to settle other legal issues, while any additional US$1 billion in litigation charges would erode 24 basis points in capital, JPMorgan Chase & Co. analysts wrote.

Any settlement above 5.4 billion euros would imply a capital increase is needed just to pay the fine, according to Andrew Lim, an analyst at Societe Generale SA.

That’s roughly the amount the bank had set aside for all legal disputes at the end of the first half.

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.

Deutsche Bank also faces inquiries into legal issues including precious metals trading and billions of dollars in transfers out of Russia.

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CG

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