Deutsche Bank sought to convince investors that it did not need a government bailout and had no plans for a capital increase on Monday morning, even as its shares fell to their lowest level in more than 20 years.
Shares in Germany’s biggest bank sank by as much as 6.9 per cent to €10.63, the lowest since the lender began trading on the Xetra exchange in 1992, although it traded below that level in the early 1980s. The stock has fallen more than 50 per cent so far this year.
The sell-off spread to other European banks, with all lenders on the Euro Stoxx bank index in the red. Shares in Barclays slipped 2.7 per cent, while Santander lost 3.1 per cent. The index itself was down 1.8 per cent.
The fall came after German magazine Focus reported that Chancellor Angela Merkel had ruled out providing any state aid for Deutsche ahead of elections in Germany next year.
The magazine also said that Ms Merkel had dismissed intervening on behalf of the bank in the US, where it has been asked by the Department of Justice for a record $14bn to settle allegations of mis-selling mortgage securities.
Deutsche has said it will not pay anywhere near the threatened fine, which is close to its total market capitalisation of $18bn, and on Monday, Jörg Eigendorf, the bank’s head of external communications, said that Deutsche’s chief executive, John Cryan, had “at no point” asked Ms Merkel to intervene in the stand-off with the DoJ.
He also insisted that the bank was working to solve its problems alone. “This question [ie. a government bailout] is not on our agenda: Deutsche Bank is determined to meet the challenges on its own,” he said. “The question of a capital increase is currently not on the agenda, we comply with all regulatory requirements.”
Deutsche is under intense pressure from investors. A number of hedge funds have built up bets that the lender’s shares will fall, including the London-based fund Marshall Wace, as well as the US-based Highfields Capital Management and Discovery.
According to regulatory filings, Marshall Wace has established the largest single short position against Deutsche equivalent to 0.93 per cent of its issued shares, worth about €135m at current prices. Highfields has sold short 0.74 per cent, while Discovery — known for its bearish views on the wider market — has bet against 0.61 per cent of Deutsche stock.
More on Deutsche Bank
Problems of scale
Cryan must make big calls amid concern over legal challenges and capital positions
Lex: whipping boy
A settlement with the DoJ will not be the final lash
Berlin asks for fairness
Germany sends US a thinly veiled warning after fine against its biggest lender
Soros Fund Management, the family office run by George Soros, had built up a short position worth more than €100m against the German bank around the time of Britain’s vote to leave the EU, but has since scaled this back to below the level where it must be publicly disclosed.
The total number of Deutsche shares out on loan, a proxy for the amount that have been sold short, rose from 1.72 per cent of its issued shares to 3.07 per cent over the past week, according to data from Markit.
However, the amount on loan remains lower than the 4.3 per cent level reached in July after the UK’s EU referendum.
On a market cap basis, Deutsche now ranks 78th among global banks, just below the likes of Malaysia’s Public Bank and Brazil’s Itausa Investimentos Itau.
Many investors do not believe that a restructuring plan, unveiled a year ago by chief executive John Cryan, will be enough to alter the bank’s fortunes. Some have been pushing for a sale of the asset management division, while others want to see deeper cost cutting.
More broadly, the International Monetary Fund has highlighted Deutsche as the world’s riskiest globally significant lender.
On Friday, Fitch Ratings noted: “The key challenges for the [German banking] sector remain ultra-low interest rates weighing on profitability, regulatory pressures, intense competition and, in the case of Deutsche Bank, misconduct and litigation charges.”