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5 things you need to know about Deutsche Bank

Analysts speculate Deutsche may be next Lehman Brothers

Gulf News

1. Share prices are at record lows

Share prices have dropped 45 per cent so far this year, trading now at just over €12 (Dh48) a share, which is even lower that the near-€15 price range they were trading at in 2009 at the height of the financial crisis. On September 29, share prices touched a low of €9.9 after some hedge funds began pulling out their investments in the German lender.

2. Both the German government and Deutsche Bank have ruled out state aid

German Chancellor Angela Merkel denied reports that the government was working on a rescue plan for Deutsche Bank, while John Cryan, the bank’s chief executive, denied asking for government support. However, many analysts still believe that should the bank’s financial performance continue to deteriorate, the German government may have to bail it out, simply because not doing so would threaten Europe’s entire banking system, and probably usher in another financial crisis.

3. A core reason behind concern is derivatives exposure

Deutsche Bank’s gross derivatives exposure is at around €46 trillion, and if that number sounds gigantic, it’s because it is (the figure represents almost 14 times the entire gross domestic product of Germany).

In an attempt to calm investors’ jitters, Deutsche’s chief risk officer told German weekly paper Welt am Sonntag earlier this week that the bank is continuing to cut back the size of its derivatives book, which is not as risky as investors believe.

4. Deutsche Bank is facing hefty legal bills (hefty to the tune of billions of dollars)

A few weeks ago, the US Department of Justice slapped a $14 billion (Dh51 billion) bill on Deutsche Bank in order to settle an investigation into the bank’s trade of mortgage-backed securities. The figure is more than twice the €5.5 billion that Deutsche had set aside to settle all its legal bills for 2016. The bank has since been trying to work out a lower fine, though reports said that Deutsche’s chief executive John Cryan failed to reach a new settlement last week when he met with US authorities in Washington.

5. Deutsche’s challenges have been ongoing for over a year

Deutsche Bank reported €6.8 billion in net losses for the full year 2015, down from the €1.7 billion in net profit reported in 2014. This was due to €6.5 billion paid in impairments, €5.2 billion paid for legal and regulatory matters, and another €1 billion for restructuring. Deutsche Bank’s chief financial officer had said earlier this year that net profit for 2016 will largely depend on litigation charges.