Fears that Deutsche Bank will have to raise capital, in order to pay its US Justice Department fine for misselling subprime mortgages, have seen it suffer badly. Angela Merkel has ruled out state aid. EURACTIV’s partner Milano Finanza reports.
Deutsche Bank hit record lows of €10.67 this morning (26 September), with stocks losing some 6% of their value on the Frankfurt Stock Exchange. Both Dow Jones and Bloomberg reported that the reason behind the collapse were fears that the bank has insufficient capital reserves to pay off its various substantial legal fees.
The German bank was not the only one to suffer, as the European financial sector was dragged down with it; Bloomberg Europe Banks reported losses of 1.5%.
The US Justice Department has demanded $14 billion in order to close a controversial case tied to the 2008 financial crisis and a misselling of subprime mortgages, which is roughly twice the capital that Deutsche Bank has set aside to deal with the matter. The banking giant only legislated for $6.2 billion, or about €5.5 billion.
But this is not an isolated case. The bank is also facing scrutiny on currency manipulation, based on trading precious metals and billions of dollars originating in Russia, which are severely limiting efforts to sustain profitability and capital ratios.
In a statement earlier this month, Andrew Lim of Société Générale warned that the German bank would be “significantly undercapitalised”, even if it were able to raise the sums needed to pay its Justice Department fees.
According to JPMorgan Chase, a deal of between $3 billion and $3.5 billion would allow to bank to resolve other legal fees, while every additional billion dollars would take 24 points of its capital base.
Angela Merkel, who will face fresh elections nationwide in late 2017, ruled out any kind of state aid, according to German magazine Focus. Both the German government nor Deutsche Bank refused to comment on the report.