The bank's shares reach its all-time lows after a German Focus magazine said that Angela Merkel would not provide state aid to pay out Deutsche Bank's $14 billion fine to the U.S. Justice Department.
Over the weekend, the Focus magazine reported that Merkel was not interested in supporting Deutsche Bank (NYSE: Deutsche Bank [DB]) in its dispute with the American Justice Department over questionable selling of mortgage-related securities between 2005-2007 prior to the 2008 crisis. The magazine said, citing governmental sources, that Merkel ruled out the possibility of providing the bank state aid to solve the dispute in a "confidential meeting" with the bank's CEO John Cryan this summer. This announcement dragged Deutsche Bank's stock down 6% to €10.62, which is the lowest stock price the bank has seen in decades. DB is down more than 52% this year already.
Interestingly, the Focus' statement was declined by Merkel's spokesperson Steffen Seibert first thing today's morning, calling it a "speculation" and saying that the chancellor did not have a meeting regarding the U.S. dispute with Cryan in the past months. The spokesperson highlighted that Berlin expects a "fair outcome" from the negotiations between the bank and the U.S. DoJ.
In turn, Deutsche Bank responded that it didn't require any state aid to settle the hefty dispute with the U.S. DoJ and never actually asked for it.
"John Cryan at no point asked the German Chancellor for the government to intervene in the U.S. Justice Department's mortgages case," Deutsche Bank's spokesman told Reuters.
Over the course of this year, Deutsche Bank has been dealing with several legal issues, with the $14 billion DoJ fine being the latest one. All of this has dragged the bank's share price down more than 50% and heated the debate around Deutsche Bank's plans to raise capital in order to compensate for the damages. In addition to that, IMF called Deutsche Bank "the world's riskiest bank" as the company announced a 98% drop in profits in the Q2 of this year, reports CNBC.
However, the bank's officials say that Deutsche Bank is nowhere near making plans for raising capital.
"A lot of those in the market understand and if they analyze the basics and the fundamentals that we are quite strong. Look at our credit story, evaluate risk very low, our credit portfolio very strong, our liquidity position very strong, very comfortable and the third quarter is almost over and I can tell you today that we are fine and very comfortable here," Deutsche Bank's spokesperson Jörg Eigendorf told CNBC.
But what makes the investors worried is the large size of the fine DoJ imposed on Deutsche Bank. A $14 billion claim is one of the largest among all similar cases. Earlier this year, Goldman Sachs (TOCOM: Futures On Gasoline Feb 2017 [GS]) paid $5.06 billion to settle similar claim from DoJ. Citigroup (NYSE: Citigroup [C]) and JPMorgan Chase (NYSE: JPMorgan Chase & Co [JPM]) paid $7 billion and $13 billion, respectively.
Focus magazine mentioned in the same statement that Deutsche Bank has only €5.5 billion of available funds for law-related settlements and paying the DoJ's fine in full would seriously question the bank's very existence. Likewise, the Wall Street Journal's analysts say that even a fine of half the DoJ opening claim would be enough to push Deutsche Bank's into raising capital while JPMorgan's experts say that a fine of as little as $4 billion would pose a serious threat.
That is why, the optimistic claims of Deutsche Bank's spokesperson don't fit in the picture very well. Right now, the bank is trying to negotiate the amount of the fine with the U.S. DoJ, what explains the German government's hope for a "fair result". However, if the amount of the fine remains unchanged, Merkel will be faced with yet another problem to solve prior the upcoming elections, as the Germany's biggest bank will indeed need substantial governmental support to get out of trouble.