Germany’s largest bank is currently in a very dubious position as the share price continues to fall. Deutsche Bank is currently under litigation in the US and there is expected to be a fine in the region of $14bn. The fine would be for the Deutsche Bank (DB) had during the financial crisis of 2008 where they were mis-selling mortgage backed securities.
The reason the fine is causing such a downtrend is that DB only accounted for about $5.2bn in repayments. For the first time last year the bank reported their first year of full losses including the repayments, however it’s now clear their estimates could be nearly $10bn short.
Deutsche Bank is one of the biggest banks in the world and faces a race to convince investors that they are the right company to keep their funds with. There has already been talk this morning that 10 major hedge funds have started to withdraw funds from the bank and if this was to continue there would be a slippery slope.
Last night Deutsche Bank’s Chairman of the hedge fund business Barry Bausano tried to reassure the markets that the brokerage servicing the hedge fund was very profitable. Bausano did however suggest he was well aware that they have a perception issue and they needed to convince investors things aren’t so bad.
What would a collapse of the bank mean?
There is no secret that several major banks in the Eurozone are in a pretty poor state; however most of those were believed to be in Italy and Greece to name but a few. Germany is seen as the financial hub of the Eurozone and essentially has kept the whole area alive. Deutsche Bank’s collapse could potentially put major pressure on several struggling banks and there is even talk of rumours of a repeat of the Lehman Brothers collapse.
Considering how significant event this could be for Europe you would expect the GBP/EUR to gain several cent. Angela Merkel has already suggested that they would not bail the bank out. After several months of worry for the UK since the Brexit vote, the tides maybe starting to turn.