Share price recovers slightly after John Cryan sends memo to German banks staff
Deutsche Bank is attempting to quash fears about its financial health as its shares crumbled to new lows on Friday, driving stock markets in Asia and Europe sharply lower.
Shares in Germanys biggest bank fell below 10 in early trading, a slide of 10% that had been foreshadowed overnight when they slumped in the US following a report by Bloomberg that 10 hedge funds had reduced their financial exposure to Deutsche Bank.
John Cryan, the Briton who has been running the bank for 15 months, attempted to calm nerves on Friday morning with a message to Deutsche Bank staff.
Our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust, Cryan said in a memo.
The banks share price recovered slightly after Cryans memo, climbing back above 10 but still down 4% on its opening level at 10.44.
Deutsches plight had a knock-on effect in the UK, with shares in Barclays and Royal Bank of Scotland both falling 3% on Friday morning and the FTSE 100 falling 1.5% 100 points while stock markets in Germany and France were also 1.5% lower.
While Deutsche has been the focus of sector-wide concerns about banks ability to cope with low interests since the start of the year, anxiety about its ability to pay a $14bn (10.5bn) penalty from the US Department of Justice for the sale of mortgage bonds a decade ago has driven its shares to near-30-year lows this week. The shares are now taking a fresh hit on concerns that billions of euros are being withdrawn by hedge funds.
Cryan has insisted the bank will not pay the $14bn the justice department has demanded. Under pressure from some analysts to accelerate his restructuring programme, Cryan is understood to be in the US, which might indicate that the bank is trying to further engage with the authorities.
He told staff: There is therefore no basis for this speculation. Nor can uncertainty about the outcome of our litigation cases in the US explain this pressure on our stock price, if we take the settlements of our peers as a benchmark.
Cryan pointed to four factors to support Deutsches strong fundamentals: restructuring on track including the sale of UK business Abbey Life this week; reduction in exposure to risky clients; 1bn of first-half profits; 215bn of easy-to-sell assets in times of crisis.
You will hear back from me soon. Please keep working as you have been doing so far. We are and we remain a strong Deutsche Bank, he told staff,7,000 of whom work in London.
Analysts at Credit Suisse said the share price reaction was overdone as the penalty would not be as the reported $14bn. We have modelled 4bn for this issue, they said, and calculated Deutsche could pay 9bn before breaching minimum capital requirements, a comfortable cushion in our view.
However, the analysts said Deutsche might still need more capital, identifying a 7bn shortfall to Cryans capital targets for 2018.
Cryans message matched that of Barry Bausano, chairman of Deutsches hedge fund business, who has also been trying to stem any panic. Bausano told CNBC on Thursday that its prime brokerage division, which services hedge funds, was still very profitable but said there was no question we have a perception issue.
Deutsches possible penalty for mis-selling of US residential mortgage-backed securities is also driving down shares in Barclays and RBS, as they too face punishment for these activities which took place in the run-up to the 2008 crisis.
The Financial Times reported on Friday that the DoJ was aiming to wrap any settlement with Deutsche into one with Barclays and Swiss bank Credit Suisse and have it completed before the US presidential election on 4 November. Credit Suisses shares were off 4.5%. RBS, which could take a hit of as much as 9bn, said earlier this week it was not in settlement talks.
Fabrizio Camelli, head of the Deutsche wealth management business, told Germanys Sddeutsche Zeitung there had not been any noticeable outflow of client funds.
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