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Thursday, September 23, 2021

Deutsche Bank shares dip after failure to agree deal with US authorities

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Deutsche Bank shares took another tumble today after the German lender failed to reach a deal with US authorities over a multi-billion dollar fine this past weekend.

German-listed Deutsche Bank shares fell over 3% at the start of trade, before paring losses to trade around 0.6% lower at €11.95 per share.

It comes after Deutsche Bank met with Department of Justice (DoJ) officials to try to renegotiate a US$14bn settlement deal following a probe into the German lender’s sale of mortgage-backed securities during the financial crisis.

Jasper Lawler, a market analyst at CMC Markets, said: “Deutsche Bank shares are down … after chief executive John Cryan coming away empty handed from his meetings with Department Justice over his bank’s potential $14bn fine.

“It was always going to be a tall order to come away with a deal that quickly.”

Some fear a pending settlement with US authorities could deplete the bank’s finances.

Those worries sent Deutsche shares into a tailspin last month to hit fresh 20-year lows on the back of liquidity concerns.

Reports also emerged on Monday that Deutsche Bank was given “special treatment” in the European Banking Authority (EBA) and European Central Bank’s (ECB) latest stress tests, raising further questions about the real capital position of one of Germany’s largest lenders.

The Financial Times reported that the European authorities gave “a special concession” to the bank, allowing it to include the $4bn proceeds from a stake sale in Chinese bank Hua Xia in its results, despite not having completed the sale.

It was part of around 20 “one-offs” approved by EU authorities before the December 2015 cut-off, to adjust for planned transactions, expenses, or events over the following months.

S&P Global Ratings has maintained its negative outlook for Deutsche Bank, saying that the German lender will likely have to pay more than it has accounted for, but should be able to absorb the costs.

The ratings agency projects that aggregate litigation charges will exceed the $5.5bn provisions and the $1.7bn contingent liability that the bank reported at the end of June.

“We remain of the view that Deutsche Bank’s main challenge is the restructuring of its business model to achieve stronger earnings and capital, and we believe recent market volatility surrounding the bank may complicate the achievement of this goal.”

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