Deutsche Bank AG shares fell sharply Monday morning on investor concerns about the German lender's capital position ahead of an anticipated legal settlement with the U.S. Justice Department.
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The shares were down as much as 6.7% Monday morning in Europe, to their lowest price in decades, according to FactSet. As of midday they were trading near EUR10.73, down 6% for the day and 52% this year.
The Wall Street Journal reported earlier this month that the U.S. Justice Department proposed Deutsche Bank pay $14 billion to settle a set of mortgage-securities investigations. In response to the report, Deutsche Bank said it had no intention of paying "anywhere near" that figure and said that negotiations were just beginning. Investors and analysts expect any settlement ultimately would be much lower than $14 billion.
On Monday, a Deutsche Bank spokesman, Joerg Eigendorf, said the lender is "fundamentally strong" but is suffering from "pure speculation" in the market, which is fueling uncertainty.
Discussion of a capital increase by the bank is speculation and "just not a question for us right now," Mr. Eigendorf said in an interview with CNBC. He said the lender plans to solve its problems itself, and rejected the notion that Deutsche Bank's Chief Executive John Cryan sought help from the German authorities to settle its U.S. legal matters.
A domestic media report over the weekend, in the magazine Focus, suggested that Chancellor Angela Merkel has ruled out extending state aid to Deutsche Bank before the German national election in September 2017. The report, citing unnamed government officials, led a spokesman for Ms. Merkel to tell reporters Monday that there was "no need for such speculation" about state aid for Deutsche Bank.
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The spokesman said Ms. Merkel is regularly in contact with German business leaders. He said the German government expects a "fair outcome" from settlement talks between Deutsche Bank and the U.S. Justice Department.
Deutsche Bank's capital woes have weighed heavily on the lender this year, worsened by the threat of a larger-than-expected Justice Department fine tied to Deutsche Bank's role issuing residential mortgage-backed securities leading up the financial crisis.
Analysts have noted that a fine of even half the Justice Department's opening bid could prompt a capital hike by Deutsche Bank, a move the bank has repeatedly said it plans to avoid.
Even a $4 billion settlement "would put questions around capital position," J.P. Morgan Chase & Co. analyst Kian Abouhossein said in a research note earlier this month.
Deutsche Bank held $6.2 billion in litigation reserves as of June 30. Analysts had been estimating a Justice Department settlement between $2 billion and $5 billion, while also saying that the process is opaque. Previous deals that banks have struck in parallel mortgage-backed securities probes aren't necessarily reliable indicators, lawyers say.
Any issuance of new shares would dilute existing shareholders, and would be particularly painful given already-steep share declines.
Deutsche Bank has been trying to shrink and cut costs in an effort to boost its capital to meet tougher regulatory hurdles ahead. It has been seeking to sell businesses as part of a strategy unveiled by Mr. Cryan in October 2015. But those goals have also been challenged by tougher market conditions and other complications.
One deal that the bank has announced, in late December 2015, involves the sale of its roughly 20% stake in Hua Xia Bank, a listed company in China. Deutsche Bank initially said it expected the roughly $4 billion deal, involving the sale of the stake to a Chinese insurer, to close by the end of the second quarter, but then in July extended that timeline to the end of the year, saying a three-month review by Chinese regulators would wrap up on Sept. 24.
That date passed with no announcement. Deutsche Bank has told investors in recent days it still expects the stake sale to close by the end of the year. Any questions about the deal wouldn't normally by themselves stoke concerns, investors say. But the sale is just one step among many Deutsche Bank has outlined to meet its capital goals, which have come under increasing pressure.
A spokesman referred to statements by Marcus Schenck, Deutsche Bank's finance chief, in July that despite the delay, the bank is "still highly confident" in closing the Hua Xia sale by year-end.
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