The news over the weekend, subsequently confirmed by a spokesperson on Monday that German Chancellor, Angela Merkel had ruled out government aid for the bank ahead next year’s election pulled the stock down to 20-year lows and the rest of the global banking sector along with it.
Deutsche Bank shares have halved in 2016, largely on the back of significant speculation about the bank’s balance sheet. Investors have increasingly worried over the course of the year about both its gross derivatives exposure and how much the bank could be on the hook for in terms of fines – most recently from an investigation by the US Department of Justice into its retail mortgage backed securities business.
Earlier this month, Deutsche Bank confirmed speculation of “an opening position by the DoJ of $14bn”. In a statement the bank said it “has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning”.
While few analysts expect the eventual fine to be anywhere close to the $14bn originally proposed, there are worries that a fine of even less than half of that could put significant pressure on the bank’s capital reserves.
In a piece out on 19 September, Bloomberg quoted Societe Generale analyst, Andrew Lim as saying in a note that any settlement above 5.4 billion euros ($6 billion) would imply a capital increase is needed just to pay the fine.