Deutsche Bank fined £500m over Russian money transfers

Deutsche may hive off profitable asset management arm

7 October

Deutsche Bank is considering the radical option of hiving off its highly profitable asset management arm to raise much needed cash after it has settled a hefty US legal bill.

Bank executives are considering separating and then floating the business, says the Financial Times, in the process offloading a minority stake for as much as €3bn (£2.7bn),

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No action will be taken before Deutsche reaches an agreement with the US Department of Justice on the scale of its fine relating to alleged mis-selling of mortgage-backed securities in the lead up to the financial crisis.

The US government demanded the bank pay $14bn (£11bn) last month. Deutsche has set aside €5.5bn (£4.9bn) to settle all of its outstanding legal issues, so even an eventual fine well below this starting figure would put a big dent in Deutsche's already weak capital reserves.

There is concern the bank would need to raise new cash or, failing that, have to plead for a government bailout. Investors fearing an existential crisis have traded the banks shares to an all-time low in the past week.

The International Monetary Fund warned this week that the bank must prove to investors it can fix its business model to return to overall profitability and shore up capital buffers.

Deutsche has already taken steps to cut costs by more than it was planning, announcing it is shedding another 1,000 jobs in its home market.

Chief executive John Cryan previously denied the bank would raise cash by selling its most profitable arm, which has €719bn (£650bn) under management. Analysts believe it would be worth around €9bn (£8bn).

A listing would be a compromise solution, allowing Deutsche to retain management control while limiting the hit to its ongoing profits, says the FT.

There was good news for Deutsche yesterday, however. Reports in the German media suggested the country's financial regulator will take no further action over as much as €10bn (£9bn) of potentially sanctions-busting trades in Russia.

The bank will now await the outcome of investigations in the UK and US, which the FT says could lead to much larger penalties. These would add to its legal bill and so the pressure on its cash reserves.

Deutsche Bank must prove it has a future, says IMF

6 October

Deutsche Bank needs to "adjust to convince markets that its business model is viable", says the International Monetary Fund (IMF).

Peter Dattels, IMF's deputy director, says that the embattled bank needs to prove to investors "it is dealing with operational risks resulting from litigation," notes The Guardian.

This could be construed as harsh criticism of Deutsche Bank but after Dattels's press conference the bank's shares rose to €12.22, their highest level in more than two weeks.

The share price rise reflects Dattels's confidence that the authorities will step in to bail out Deutsche Bank if a fine in the US wipes out its capital reserves and investors are unwilling to stump up cash, says Reuters.

Dattels says that Deutsche Bank needs to do a better job of proving to investors why they should continue to support it, but if it were to fail "German and European authorities… [will] ensure the financial system remains resilient."

Deutsche is facing a $14bn (£11bn) fine from the US Department of Justice relating to its sale of mortgage-backed securities in the lead up to the financial crisis.

The bank has only set aside €5.5bn (£4.9bn) or so to settle ongoing litigations. This isn’t the only legal action hanging over the bank and its pre-existing capital reserves are already regarded as thin in comparison to its peers.

The potential litigation costs have raised the prospect of a bank failure that would be on an even bigger scale than the collapse of Lehman Brothers that triggered the financial crash in 2008.

That's why the authorities could well be willing to step in if needed, even if they are denying this at the moment.

In an effort to do as the IMF says and prove to investors that it can turn around its business model, Deutsche Bank has just announced a raft of new cost-cutting measures designed to stem losses.

The bank has also announced an agreement with employee councils to cut another 1,000 jobs in its home market, says CNBC. The job cuts will come on top of the 3,000 role reductions the bank has already set out, taking the total workforce reduction down to 9,000.

Deutsche Bank pressure mounts as hedge funds 'pull business'

30 September

Pressure is mounting on Deutsche Bank – and the German government – as reports claimed several customers have "started to pull some of their business", sending shares to a new all-time low.

Bloomberg says a number of hedge funds have moved to "reduce their financial exposure" by shifting some of their riskier holdings to Deutsche's rivals.

A source told the Financial Times the funds "had imposed risk limits on the business", which suggests they fear Germany's largest banking group may at some point fail to meet its obligations for transactions it has underwritten.

This is exactly the situation Deutsche executives must have feared: market panic and a nosedive in its share price would become a self-fulfilling prophesy as clients pull out in response.

Clemens Fuest, the president of Munich-based economic research group the Ifo Institute, told the New York Times: "It's kind of scary. In principle, this is a fairly solid bank, but due to rumours the bank is getting in trouble [this] can get dangerous - and create a liquidity situation."

The BBC says Deutsche's British-born boss John Cryan has circulated a note to staff saying the bank is stronger than it has been in two decades and that "new rumours" were causing shares price to fall.

The FT's source said the hedge funds represented only a "small sub-set" of the bank's institutional clients and that Deutsche has €233bn (£201bn) in "liquidity reserves" so it can "last at least two months, more like three months" even if all clients stopped trading.

Even so, Deutsche shares fell below €10 (£8.60) for the first time ever overnight. At the height of the financial crisis they were worth €100.

At the heart of the crisis is the revelation earlier this month that the US Department of Justice wants to fine Deutsche $14bn (£11bn) over mis-selling of mortgage securities in the lead up to the financial crash.

That's money the bank does not have – and given it was deemed to have only thin reserves anyway, there are fears investors will not stump up more cash. That means it might need state help, but the government has so far said it is not willing to step in.

Jeffrey Gundlach, the founder of DoubleLine Capital, said should "stay away" from Deutsche shares for now.

"The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be," he said.

Confidence that Angela Merkel's administration will eventually provide support to protect its biggest bank has led to predictions the situation will not turn out to be Deutsche's "Lehman Brothers" moment.

Marcel Fratzscher, the head of think-tank DIW Berlin, said: "If push comes to shove, the German government would contribute because Deutsche Bank is the only global bank that Germany has."

Why Deutsche Bank (probably) isn't the next Lehman Brothers

29 September

It's all getting more than a bit hairy – 2008 style.

A run on the shares of Germany's number one lender, Deutsche Bank, has "raised fears that it could present a Lehman Brothers-style moment for the markets", says The Guardian.

Deutsche has long been seen as the weak link in European banking. The New York Times says it has "one of the thinner cash cushions among its peers", while the International Monetary Fund this summer warned it posed the "greatest risk to the global financial system".

Now the US Department of Justice has demanded $14bn (£11bn) relating to the "mis-selling" of mortgage securities, the scandal at the heart of the financial crisis and which did for Lehmans.

There is concern Deutsche's cash reserves will prove insufficient - and that its investors won't be willing provide new funds.

With the German government insisting it is not considering a bailout, the frightening prospect is that if the bank cannot raise cash quickly through a fire sale of assets, a full-on collapse could be on the cards.

Failure of Deutsche would perhaps be even worse than that which triggered the worst financial crash in living memory, says Richard Gulyas in The Australian.

"It's a counterparty to almost every bank of meaningful size, far more so than Lehmans, so it simply doesn't bear thinking that governments and regulators would invite a prolonged nuclear winter by closing the bank's doors," he says.

And that's exactly why it won't be allowed to happen, he adds. "The good news… is that the world has learnt its lesson from the 2008 collapse of Lehman Brothers, so it won't allow a disorderly failure of the German banking colossus."

Deutsche's British-born boss John Cryan has repeatedly denied he has approached Berlin for a bailout. He claims the bank will not end up paying anywhere near the $14bn fine that has been mooted and that it has sufficient reserves.

The New York Times also says Deutsche has reduced risk by shrinking itself through the €1bn (£860m) sale of Abbey Life, its UK insurance business, yesterday. Shares rallied on the news, but remain near 24-year lows.

But there are those that are not convinced – and who cite the 2008 Lehmans' collapse as evidence of the folly of misplaced optimism.

Writing in the Daily Telegraph, James Quinn says: "If there is a lesson from what happened in 2008… it is that statements around recapitalisation and a lack of liquidity should never be believed.

"Not only does it not make any sense for a bank executive to admit that it is in negotiations with its government to bail it out – for fear of a run on deposits and its shares – it also is an admission of failure, and as such, not going to happen until it happens."

Most experts agree, though, that if "it" happens, the German government will be there after all.

Deutsche Bank shares plunge to 24-year low

24 September

Deutsche Bank shares recorded another catastrophic one-day fall on Monday, as markets fretted it will be unable to meet a massive fine in the US.

Stock tumbled 7.5 per cent, says the Financial Times, the "worst single-day loss since the lender was threatened with a prospective $14bn (£11bn) fine from the US Department of Justice earlier this month".

That left the price languishing at €10.55, the lowest since "at least" 1992. By some measures it was a nadir not seen "since the mid-1980s", says The Guardian, while the Daily Telegraph reports it was a "record low".

Shares were already down by around half in the past year over fears Deutsche does not have enough reserve capital. The FT reports the International Monetary Fund already ranked it as the "riskiest globally significant bank".

But the threat of the massive penalty over the sale of mortgage-backed securities in the lead-up to the financial crisis has induced fresh panic among investors.

The fine would be more than double the $5.5bn the bank has set aside to deal with litigation issues, including any penalty relating to an investigation into allegedly sanctions-busting trades in Russia.

Deutsche Bank shares recorded another catastrophic one-day fall on Monday, as markets fretted it will be unable to meet a massive fine in the US.

Stock tumbled 7.5 per cent, says the Financial Times, the "worst single-day loss since the lender was threatened with a prospective $14bn (£11bn) fine from the US Department of Justice earlier this month".

That left the price languishing at €10.55, the lowest since "at least" 1992. By some measures it was a nadir not seen "since the mid-1980s", says The Guardian, while the Daily Telegraph reports it was a "record low".

Shares were already down by around half in the past year over fears Deutsche does not have enough reserve capital. The FT reports the International Monetary Fund already ranked it as the "riskiest globally significant bank".

But the threat of the massive penalty over the sale of mortgage-backed securities in the lead-up to the financial crisis has induced fresh panic among investors.

The fine would be more than double the $5.5bn the bank has set aside to deal with litigation issues, including any penalty relating to an investigation into allegedly sanctions-busting trades in Russia.

Reports over the weekend said German Chancellor Angela Merkel told Deutsche boss John Cryan the bank can expect no state help to deal with a capital crisis.

Deutsche says it has more than enough capital to meet its regulatory obligations and has never asked for government support. It also claims the eventual fine will be nowhere close to the $14bn demanded so far.

However, the prospect of a fine that could cause a real existential crisis for a major global bank has worried investors around the world, with the Telegraph reporting the FTSE 100 lost 1.3 per cent, or £23bn, yesterday.

Banks were unsurprisingly the worst hit, with Royal Bank of Scotland, which is also in negotiations with the US Department of Justice over the same issue, losing more than five per cent to 177.5p.