Deutsche executives due in US for settlement talks - reports

Deutsche Bank executives are heading to the United States in the coming days to negotiate a settlement over a fine of up to $14 billion for misselling mortgage-backed securities, the Frankfurter Allegemeine Zeitung reported. The potential fine, announced two weeks ago, has sent shares in Germany's biggest lender into freefall.

On Friday, the stock partially recovered after a media report that the two sides were close to a settlement of $5.4 billion. The FAZ did not cite any sources for its report.Shares in the troubled bank closed at €11.57, up 6.4 per cent, the biggest gain since April.

Agence France-Presse reported that the lender is nearing a settlement with the DoJ in an investigation tied to residential mortgage-backed securities, citing an unidentified source. Spokesmen for the Frankfurt-based lender and the DoJ declined to comment.

Deutsche Bank’s stock and debt have been under pressure after the justice department earlier this month requested $14 billion to settle an investigation into residential mortgage-backed securities.

Election pressure

While Deutsche has said it does not expect to pay a figure anywhere near the $14 billion demanded, the department is pushing to agree a trio of settlements ahead of the US election in November.

In a memo to staff earlier on Friday, chief executive John Cryan noted that rivals had reached far lower settlements with US regulators over misdemeanours in the past.

“Even the uncertainty over the outcome of our legal process in the US is not a reason for the pressure on our share price, if we take the settlements of our peers as a benchmark,” he wrote.

"The amount would be very good news, below what consensus expects now," said Jerome Legras, an investor at Axiom Alternative Investments, who holds a short position on the lender. "Deutsche Bank has dropped so much as there is so much speculation circulating – at some point people just want to make a profit on short positions."

Analysts at JPMorgan Chase wrote in a note to clients earlier this month that a US settlement of $3 billion to $3.5 billion would leave the German lender room to settle other legal issues. Any additional $1 billion in litigation charges would erode capital by 24 basis points, it said.

The bank’s common equity Tier 1 ratio stood at 10.8 per cent at the end of June.

Deutsche Bank has long struggled to adapt to an era of tougher capital requirements and diminished trading revenue. Mr Cryan has already said that the lender may fail to be profitable this year, calling it a peak restructuring year, as he eliminates thousands of jobs and cuts risky assets.

But he added that, excluding one-off costs, the bank had made a pre-tax profit of €1.7 billion in the first half of the year, and drew attention to the strength of Deutsche’s liquidity reserves, which stand at €215 billion.

The shares had been pushed to a fresh record low earlier on Friday after reports that some hedge fund clients had reduced their financial exposure to the bank.

Deutsche Bank has lost about 49 per cent of its market value this year.

– Bloomberg / The Financial Times Limited 2016