Local shares yesterday lost momentum and closed below the 9,200-point mark, amid global concerns over a financial crisis at Deutsche Bank AG.
The TAIEX ended down 104.05 points, or 1.12 percent, at 9,166.85, with turnover of NT$72.70 billion (US$2.32 billion), Taiwan Stock Exchange data showed.
Shares in the financial services sector weakened, with Fubon Financial Holding Co (富邦金控) closing down 1.07 percent at NT$46.3 and Cathay Financial Holding Co (國泰金控) ending 1.47 percent lower at NT$40.1.
Photo: CNA
Deutsche Bank has been a growing concern for investors after US authorities two weeks ago said they are seeking US$14 billion from the bank to settle legal claims over its sales of mortgage securities, complex investments that were one of the key causes of the global financial crisis in 2008.
With the German government giving no sign that it would be prepared to offer a bailout, and the bank heavily exposed to risky investments, notably in the derivatives markets, investors have grown increasingly jittery.
That worry was only temporarily relieved by Deutsche Bank’s move this week to sell an insurance subsidiary for just more than 1 billion euros (US$1.12 billion) to shore up its capital buffers.
However, the latest unease over Deutsche Bank stemmed from reports that about 10 hedge funds had taken measures to reduce their exposure to the bank.
Asian equities fell the most in almost three weeks, with stocks in Japan and South Korea dropping 1.3 percent and 1 percent respectively. Hong Kong also closed down 1.9 percent to pare its best quarterly performance in seven years.
For its part, shares in Germany’s biggest bank yesterday fell to a record low and rekindled broader concerns about Europe’s financial sector. At one moment in frenzied early trading, the bank’s stock fell another 8 percent to below 10 euros per share for the first time, before recovering somewhat to trade 4.3 percent lower at 10.42 euros in Frankfurt, Germany.
The turbulence prompted Deutsche Bank CEO John Cryan to issue an open letter to employees, in which he said the news about the hedge funds is “causing unjustified concerns” and should be seen in the wider context of the bank’s 20 million clients.
“It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust,” Cryan said.
The bank is fundamentally strong, is meeting its capital requirements, is profitable and has “an extremely comfortable buffer” when it comes to liquidity, with reserves of more than 215 billion euros, he said.
“There is therefore no basis for this speculation,” Cryan said. “Nor can uncertainty about the outcome of our litigation cases in the US explain this pressure on our stock price, if we take the settlements of our peers as a benchmark.”
Although Cryan’s words seemed to have helped limit the damage in the markets, analysts said it is difficult for a bank to turn around its fortunes once it has been tainted by speculation of financial trouble.
However, the wider worry is that Deutsche Bank might prove to be a “Lehman moment” for the European banking sector. In September 2008, the US government made clear that it was not going to bail out investment bank Lehman Brothers Holdings Inc when it was in huge difficulty.
As Lehman was connected to many other banks, the decision to let it fall proved fateful: It triggered a collapse of confidence in the global financial system that pushed the world economy into its deepest recession since World War II.
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