Deutsche Bank Shares Drop on Fears of Capital Raising -- 2nd Update
September 26 2016 - 8:34AM
Dow Jones News
By Jenny Strasburg in London and Andrea Thoma in Berlin
Deutsche Bank AG shares fell sharply Monday morning on investor
concerns about the German lender's capital position ahead of an
anticipated legal settlement with the U.S. Justice Department.
The shares were down as much as 6.7% Monday morning in Europe,
to their lowest price in decades, according to FactSet. As of
midday they were trading near EUR10.73, down 6% for the day and 52%
this year.
The Wall Street Journal reported earlier this month that the
U.S. Justice Department proposed Deutsche Bank pay $14 billion to
settle a set of mortgage-securities investigations. In response to
the report, Deutsche Bank said it had no intention of paying
"anywhere near" that figure and said that negotiations were just
beginning. Investors and analysts expect any settlement ultimately
would be much lower than $14 billion.
On Monday, a Deutsche Bank spokesman, Joerg Eigendorf, said the
lender is "fundamentally strong" but is suffering from "pure
speculation" in the market, which is fueling uncertainty.
Discussion of a capital increase by the bank is speculation and
"just not a question for us right now," Mr. Eigendorf said in an
interview with CNBC. He said the lender plans to solve its problems
itself, and rejected the notion that Deutsche Bank's Chief
Executive John Cryan sought help from the German authorities to
settle its U.S. legal matters.
A domestic media report over the weekend, in the magazine Focus,
suggested that Chancellor Angela Merkel has ruled out extending
state aid to Deutsche Bank before the German national election in
September 2017. The report, citing unnamed government officials,
led a spokesman for Ms. Merkel to tell reporters Monday that there
was "no need for such speculation" about state aid for Deutsche
Bank.
The spokesman said Ms. Merkel is regularly in contact with
German business leaders. He said the German government expects a
"fair outcome" from settlement talks between Deutsche Bank and the
U.S. Justice Department.
Deutsche Bank's capital woes have weighed heavily on the lender
this year, worsened by the threat of a larger-than-expected Justice
Department fine tied to Deutsche Bank's role issuing residential
mortgage-backed securities leading up the financial crisis.
Analysts have noted that a fine of even half the Justice
Department's opening bid could prompt a capital hike by Deutsche
Bank, a move the bank has repeatedly said it plans to avoid.
Even a $4 billion settlement "would put questions around capital
position," J.P. Morgan Chase & Co. analyst Kian Abouhossein
said in a research note earlier this month.
Deutsche Bank held $6.2 billion in litigation reserves as of
June 30. Analysts had been estimating a Justice Department
settlement between $2 billion and $5 billion, while also saying
that the process is opaque. Previous deals that banks have struck
in parallel mortgage-backed securities probes aren't necessarily
reliable indicators, lawyers say.
Any issuance of new shares would dilute existing shareholders,
and would be particularly painful given already-steep share
declines.
Deutsche Bank has been trying to shrink and cut costs in an
effort to boost its capital to meet tougher regulatory hurdles
ahead. It has been seeking to sell businesses as part of a strategy
unveiled by Mr. Cryan in October 2015. But those goals have also
been challenged by tougher market conditions and other
complications.
One deal that the bank has announced, in late December 2015,
involves the sale of its roughly 20% stake in Hua Xia Bank, a
listed company in China. Deutsche Bank initially said it expected
the roughly $4 billion deal, involving the sale of the stake to a
Chinese insurer, to close by the end of the second quarter, but
then in July extended that timeline to the end of the year, saying
a three-month review by Chinese regulators would wrap up on Sept.
24.
That date passed with no announcement. Deutsche Bank has told
investors in recent days it still expects the stake sale to close
by the end of the year. Any questions about the deal wouldn't
normally by themselves stoke concerns, investors say. But the sale
is just one step among many Deutsche Bank has outlined to meet its
capital goals, which have come under increasing pressure.
A spokesman referred to statements by Marcus Schenck, Deutsche
Bank's finance chief, in July that despite the delay, the bank is
"still highly confident" in closing the Hua Xia sale by
year-end.
Monica Houston-Waesch
and
Madeleine Nissen
contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com
(END) Dow Jones Newswires
September 26, 2016 08:19 ET (12:19 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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