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Deutsche Bank shares claw back gains after hitting record low; Commerzbank slides 4%

Shares of Deutsche Bank hit a new record low on Friday before recovering some of their gains in afternoon trading.

The fresh plummet on the European market open to a record low of 9.90 euros were sparked by fresh capital concerns over a proposed settlement by the U.S. Department of Justice and a report that some hedge funds were reducing their exposure to the embattled bank.

The German lender's stock has been on wild ride in recent weeks and dipped below 10 euros a share on Friday morning. By 2.00 p.m. London time the stock was out of negative territory.

The German DAX was dragged lower and the banking sector as a whole in Europe was pushed into negative territory.

Rival German lender Commerzbank saw its shares fall 4 percent after announcing job cuts on Thursday and a plan to cut its dividend. Other European lenders like Unicredit, Barclays and Credit Agricole also saw hefty losses as the session progressed.

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At one point on Friday, the cost of insuring Deutsche Bank's debt against default jumped by 21 basis points on Friday, according to data from Markit, and trading in Deutsche Bank's so-called "CoCo" bonds - widely-watched contingent convertible bonds - set a new record low, according to Dow Jones. These bonds are converted into equity once a specified event has occurred (if the bank were to undergo a precautionary recapitalization, for instance).

A woman with a umbrella passes a logo of Deutsche Bank in Frankfurt am Main, Germany.
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A woman with a umbrella passes a logo of Deutsche Bank in Frankfurt am Main, Germany.

The share price plunge in Europe came after U.S. stocks closed sharply lower on Thursday as concerns over Deutsche Bank weighed on benchmarks. The bank's U.S.-listed shares fell to an all-time low on Thursday and weighed on the broader financial sector.

The three major indexes hit session lows shortly after Bloomberg reported that approximately 10 hedge funds were reducing their exposure to the embattled European bank.

Deutsche later told CNBC this is "typical" when doing business with hedge funds. The bank's U.S.-listed shares closed down 6.67 percent on Thursday, after dropping as much as 9.02 percent to $11.19, an all-time intraday low.

The perception is that Deutsche Bank needs to raise capital after the U.S. Justice Department (DOJ) suggested it pay $14 billion to settle a number of investigations related to mortgage securities. Initial worries about Deutsche Bank actually surfaced earlier in the year, with investors detailing concerns over its exposure to the energy sector and a possible cash crunch.

The bank has repeatedly defended itself over recent weeks, however, telling CNBC that there is "no reason to worry" and that the bank had a "comfortable cushion."

On Friday, Deutsche Bank CEO John Cryan sought to reassure his employees in an internal letter on Friday, saying the bank had strong fundamentals and recent media reports were causing "unjustified concerns."

Meanwhile, analysts at Goldman Sachs Thursday iterated that Deutsche Bank's liquidity position was stable and highlighted that the European Central Bank was always available to lend money to these banks at record low rates.

—CNBC's Fred Imbert contributed to this report.