Stock drops as much as 7% sparking sell-off in European banks
Deutsche Bank sought to convince investors that it did not need a government bailout and had no plans for a capital increase on Monday morning, even as its shares fell to their lowest level in more than 20 years.
Shares in Germany’s biggest bank sank by as much as 6.9 per cent to €10.63, the lowest since the lender began trading on the Xetra exchange in 1992, although it traded below that level in the early 1980s. The stock has fallen more than 50 per cent so far this year.
The sell-off spread to other European banks, with all lenders on the Euro Stoxx bank index in the red. Shares in Barclays slipped 2.7 per cent, while Santander lost 3.1 per cent. The index itself was down 1.8 per cent.
The fall came after German magazine Focus reported that Chancellor Angela Merkel had ruled out providing any state aid for Deutsche ahead of elections in Germany next year.
The magazine also said that Ms Merkel had dismissed intervening on behalf of the bank in the US, where it has been asked by the Department of Justice for a record $14bn to settle allegations of mis-selling mortgage securities.
He also insisted that the bank was working to solve its problems alone. “This question [ie. a government bailout] is not on our agenda: Deutsche Bank is determined to meet the challenges on its own,” he said. “The question of a capital increase is currently not on the agenda, we comply with all regulatory requirements.”
“Deutsche Bank is still a very big institution,” said Chris Wheeler, London-based analyst at Atlantic Equities. “Regardless of what Ms Merkel says, the view of the market is that the German government will stand firmly behind Deutsche Bank, for good nationalistic reasons and because if there was a serious problem for Deutsche Bank it would be a massive dislocation for the whole system.”
Mr Wheeler said the bigger worry about “days like today” is that Deutsche starts losing revenue because of the negative news around the bank itself. “John (Cryan) always needed robust revenue growth to get him through this period (of restructuring),” said Mr Wheeler. He added that the businesses that were “supposed to thrive” under Deutsche’s new platform, such as its investment bank, were those most at risk from losing revenue if counterparties became uncomfortable dealing with the German bank.
Soros Fund Management, the family office run by George Soros, had built up a short position worth more than €100m against the German bank around the time of Britain’s vote to leave the EU, but has since scaled this back to below the level where it must be publicly disclosed.
Many investors do not believe that a restructuring plan, unveiled a year ago by chief executive John Cryan, will be enough to alter the bank’s fortunes. Some have been pushing for a sale of the asset management division, while others want to see deeper cost cutting.
More broadly, the International Monetary Fund has highlighted Deutsche as the world’s riskiest globally significant lender.
Full article: Deutsche Bank seeks to reassure investors as shares slide (Financial Times)