FRANKFURT • Shares of Deutsche Bank yesterday slumped to a record low, its riskiest bonds dropped and hedge funds reduced their financial exposure to the lender, amid growing concern about the lender's ability to withstand mounting legal costs.
The bank, Germany's only global lender, has become the focal point of growing anxiety about the health of Europe's banking system after the US Department of Justice told the bank it was seeking US$14 billion (S$19 billion) for mis-selling mortgage-backed securities.
About 10 hedge funds, a small subset of the more than 800 clients in the bank's hedge fund business, have moved part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News.
Deutsche Bank chief executive John Cryan yesterday responded to what he called "media speculation", saying the bank's balance sheet has never been safer over the past two decades. "Our job is to ensure that this distorted perception from the outside doesn't have a stronger impact on our day-to-day business.
"There are market forces afoot that want to undermine this trust in us," he wrote.
The bank's shares shed 4.9 per cent to €10.35 in morning trade in Frankfurt after declining below €10 for the first time.
The lender's €1.75 billion (S$2.7 billion) of 6 per cent additional Tier 1 bonds, the first notes to take losses in a crisis, fell as much as five US cents on the euro to 69 US cents, a record low, according to data compiled by Bloomberg.
European regulators and government officials have kept a low profile in public over Deutsche's deepening woes. In private, however, they have struck a sanguine tone, stressing that in extremis there is scope under European regulation to inject state funds to support the bank, provided it is done in line with market conditions, according to the Financial Times.
Mr Marcel Fratzscher, head of DIW Berlin, a think-tank, said: "If push comes to shove, the German government would contribute because Deutsche Bank is the only global bank that Germany has."
Analysts say the bank has lots of readily available funds even if some clients pull deposits. The Frankfurt-based lender had €223 billion in its liquidity reserves at June 30.
Its liquidity coverage ratio, which is the amount of cash and easy-to-sell assets divided by an estimate of potential outflows in a 30-day period, was 124 per cent, above the minimum 100 per cent regulators demand.
"Deutsche has many problems, but liquidity is not one of them," Autonomous Research analyst Stuart Graham said on Thursday.