Wednesday, September 28, 2016
Germany is denying it's preparing to bailout Deutsche Bank
The German government has denied claims that it is in the process of preparing a bailout package for the country's biggest lender, Deutsche Bank.
Earlier on Wednesday, German newspaper Die Zeit reported that officials in the state are in the process of preparing for the prospect that Deutsche will need some form of state assistance if it is forced to pay a $14 billion (£10.7 billion) fine by the US Department of Justice.
Deutsche Bank faces billions in legal costs and settlements with US authorities over an investigation into sales of mortgage-backed securities, which would leave the bank seriously undercapitalised.
As a result, Zeit reported, Berlin is now preparing for the worst, saying: "The project is top secret, only about half a dozen top officials in Berlin, Frankfurt and Brussels are in the know. They are preparing for an eventuality that would shake the country and that only a few weeks ago was seen as completely unthinkable: the destabilisation of Deutsche Bank," said the paper (roughly translated from the original German).
In the worst case scenario, Zeit said, the government could be prepared to take a 25% stake in the bank, similar to the bailouts of RBS and Lloyds by the British government during the financial crisis.
However, the German finance ministry has now flatly denied that any such talks are happening, calling Zeit's report "false."
"This report is false," spokeswoman Nadine Kalwey wrote in a statement cited by Reuters. "The federal government is preparing no rescue plans. There is no reason for such speculation. The bank has said that clearly."
Earlier in the day, in an interview with another German newspaper, Bild, Deutsche Bank's CEO John Cryan denied any possibility of the bank needing help from Berlin, saying: "State aid is not an issue."
The bank has also internally downplayed the severity of its troubles. In a memo sent to staff on Tuesday, seen by Business Insider, the bank reassured employees about its financial position. The bank says it has "no current plans to raise capital" and emphasised that it has ample reserves to cover debt payments.
Deutsche also repeated its line that it has "no intention to settle these potential civil claims anywhere near the opening position of $14 billion." It added: "Regarding litigation, we are confident we can put some important cases behind us in the near future."
Deutsche's stock dropped to a record low on Monday, falling below €10.50 (£9.05) per share for the first time in its history. Since then, however, it has rebounded a little, and during morning trading on Wednesday, shares were up as much 3% to €10.87 (£9.37). Deutsche's early gains on Wednesday were helped by confirmation that it has sold Abbey Life Assurance to Phoenix Group, something that the bank says will have "a net positive" impact on its capital position.
Since then shares have pulled back a little and are currently trading at €10.82 (£9.32), up by around 2.55% as of 12:00 p.m. BST (7:00 a.m. ET).