Banks

Deutsche Bank shares seesaw as speculation of a DOJ settlement grows

How will regulators deal with  Deutsche Bank
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How will regulators deal with Deutsche Bank

Shares of Deutsche Bank seesawed Wednesday after a report the embattled German lender was eyeing a lower settlement with U.S. authorities, adding to speculation on a possible outcome for its litigation issues.

German markets news publication Der Platow Brief said on Tuesday that Deutsche Bank was looking at a settlement of $4 billion to $5 billion by end of October with the U.S. Department of Justice (DOJ). The newsletter, which was reported by Reuters, also said that the bank was considering scrapping bonuses and raising fresh capital but it did not cite sources.

Shares of Germany's biggest bank by assets fluctuated between gains and losses on Wednesday, continuing a spate of market volatility experienced by the bank since reports last month that it could face a penalty of up to $14 billion from the DOJ for the misselling of mortgage-backed securities in the run up to the financial crisis of 2008. Shares of the bank closed up 2.77 percent on Wednesday.


The twin tower skyscraper headquarter offices of Deutsche Bank AG stand beyond pipework in Frankfurt, Germany, on Tuesday, Oct. 4, 2016.
Jasper Juinen | Bloomberg | Getty Images

There are concerns that the bank, which is viewed as a risk to the global banking system, cannot afford such a large amount and could need some kind of rescue or "bail-in" of depositors. As such, even unsubstantiated reports of a smaller, more manageable settlement have been welcomed by investors. 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."

German economic experts told CNBC on Wednesday that the final size of the settlement with U.S. authorities made a big difference to the outcome of the Deutsche Bank debacle.

"The question is does Deutsche Bank need to raise additional capital? Of course that has to do very much with the size of the settlement with the Department of Justice in the U.S," Marcel Fratzscher, president of the German Institute for Economic Research, told CNBC Wednesday.

Deutsche Bank is too big to fail: Expert
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Deutsche Bank is too big to fail: Expert

"The crucial issue will be how big is this settlement? How is the liquidity situation of Deutsche Bank?" he added. "There is now a wait and see strategy if Deutsche Bank has any solution that it is bringing cash in so that regulators don't have to worry."

Meanwhile, Clemens Fuest, president of Germany's influential Ifo Institute, said the recent turbulence around Deutsche Bank "are examples of the fact that rumors, concerns and speculations can give rise to difficulties that are solid and challenging."

Deutsche Bank shares saw choppy trade throughout Tuesday's session but closed nearly 1.5 percent higher. It received a vote of confidence from JPMorgan Chase's CEO Jamie Dimon, who told CNBC Monday that he believed the German lender was going to be fine.

More optimism came on Wednesday with Moody's ratings agency saying that it was maintaining a stable outlook on Germany's banking system amid a "resilient operating environment".

—Additional reporting by CNBC's Spriha Srivastava

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