Deutsche Bank won respite on Friday from the market storm that threatened to engulf it during a week of intense volatility that exposed the fragility of Europe’s banking system.
As senior political and financial figures rallied round Germany’s biggest lender, it emerged that John Cryan, chief executive of Deutsche, had travelled to the US this week seeking to settle the Department of Justice’s probe into alleged mis-selling of mortgage securities.
A settlement of the case, which has destabilised investor confidence in the bank, was possible as early as this weekend, said people briefed on the talks.
Deutsche shares rallied sharply and closed up 6.4 per cent on Friday, having fallen as much 9 per cent earlier in the day to €9.90, their lowest since 1983.
Sentiment was boosted after the AFP news agency reported that Deutsche was close to a $5.4bn deal with US authorities — far below the initial $14bn demand from the authorities that sparked the worries about the bank’s capital levels.
However, analysts and academics said that while the fears of collapse at Deutsche were overdone, the events of the past week have exposed cracks in Europe’s banking system. “An inability to generate organic capital is the root of Deutsche’s problems in our view,” wrote Kian Abouhossein, analyst at JPMorgan, in a note.
The sharp fall in Deutsche shares in early morning European trading was triggered after hedge funds on Thursday had started to pull some of their business from the bank.
In response, Mr Cryan sent a memo to staff in which he said the bank had “strong foundations” and called on employees to ensure that any “distorted perception from outside” did not affect the bank’s daily business.
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“In banking, trust is the basis of everything. There are currently some forces at play in the market that want to weaken this trust in us,” he wrote.
Martin Hellmich, professor at Frankfurt School of Finance and Management, said: “What we saw this week was that the banking sector in Europe is still very weak. When you combine this with negative rates, with rising regulatory requirements and with loss of share to the US that is a very negative spiral that Europe has still not been able to break out of.”
Martin Zielke, chief executive of Commerzbank, said he was “relatively relaxed” at a press conference in Frankfurt, which was called after the bank unveiled plans to cut 9,600 jobs and scrap its dividend. “Market moves sometimes happen that you shouldn’t take too seriously,” Mr Zielke added.
Sabine Lautenschläger, a member of the European Central Bank’s executive board, also weighed in, saying: “Banks today are on average much better capitalised than before the crisis, and a lot has also been done on supervision”, adding that during periods of market volatility such “improvements in the overall picture” were often forgotten.
Hans-Walter Peters, president of the Association of German Banks, dismissed the pressure on Deutsche. “That short-term operators like hedge funds, in particular, react to speculation and cause prices to change is not unusual and should not be blown out of proportion,” he said.
Additional reporting by Barney Jopson, Michael Hunter, Michael MacKenzie, Josh Noble and Mark Odell.