Heavy market pressure on Deutsche Bank AG eased on Friday as a knowledgeable source told reporters that the US fine over toxic debt it sold would be only US$5.4 billion, not the US$14 billion originally demanded.
A person familiar with the talks between Deutsche Bank and the US Department of Justice said an agreement could come in the next few days to settle the US government charges that the bank knowingly sold high-risk mortgage securities ahead of the 2008 financial crisis.
The final amount of the settlement could also be slightly different, said the person, who spoke on condition of anonymity.
The news powered the shares of Germany’s biggest lender dramatically higher as worries about its financial stability under the pressure of a potentially massive US fine diminished.
US-traded shares of the bank finished up 14 percent at US$13.09, while in Frankfurt — in part due to different market hours relative to the timing of the news — shares added 6.4 percent at 11.57 euros.
Deutsche Bank and the Justice Department declined to comment on the news of a deal, as did the German Ministry of Finance.
Worries about the effect of the case on Deutsche Bank had spread through markets and into the political realm over the past week, amid conflicting reports in German media on whether Berlin would come to the troubled bank’s aid if necessary, as well as news that a number of hedge funds that clear derivatives business through the bank had pulled out money.
This sparked fears that a banking meltdown reminiscent of the 2008 crisis was in the making, potentially dragging other European banks and global markets down with it.
Deutsche Bank chief executive John Cryan lifted the mood with a letter to staff members on Friday insisting that the bank was not at risk.
The bank has suffered for months from perceptions of a weak capital base. In June it flunked a US Federal Reserve stress test.
A month later Deutsche was among the worst performers in a European Banking Authority stress test, although Cryan insisted the exercise had demonstrated the institution’s resilience to future crises.
A settlement with US authorities of US$5.4 billion would be just shy of the total Deutsche Bank has set aside in provisions for outstanding legal actions.
CMC Markets analyst Jasper Lawler said that the improved match of figures “may make a rights issue more palatable and makes a government bailout much less likely.”
Still, the US toxic mortgage-securities case is just one of 8,000 legal challenges burdening Deutsche Bank. An investigation by New York regulators over allegations of money laundering at its Moscow office looms.
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