Settling For Less

On September 16, shares in Germany’s biggest bank, where Mr Cryan is now chief executive, slumped 8.5 per cent after it emerged that US authorities had demanded $14bn – three times what had been expected and only slightly less than Deutsche’s wizened market value – to settle allegations that the bank mis-sold mortgage-backed securities before the financial crisis. A week later, they tumbled 7 per cent after it was reported that, despite fears that such a huge penalty could hurt Deutsche’s financial strength, the German government had ruled out rescuing the lender. In early trading yesterday, they plunged another 8 per cent after a handful of hedge funds began withdrawing some of their derivatives business from the bank . The turbulent fortnight saw the bank’s share price, already pummelled by months of precipitous fall, hit a 33-year low of €9.90 early yesterday before recovering to €11.57 at the close. Despite vehement denials from both the bank and the German government, there has been rampant speculation in recent weeks that Deutsche – long the biggest player in Europe’s strongest economy and a vital cog in global capital markets – could need a government rescue. For a bank that spent much of the past 30 years trying to break the US grip on global investment banking, it is a remarkable turn of events. And given how big, and interconnected, Deutsche has become in its pursuit of its Wall Street rivals, its woes have sent jitters through markets all week. For Angela Merkel , the German chancellor, whose popularity is already on the wane over her open-door refugee policy, a bailout of Deutsche would be political poison. Putting taxpayers on the hook for the hard-charging investment bank would cause Ms Merkel severe political damage ahead of next year’s parliamentary elections. Abroad, it would provoke accusations of double standards, since Germany has insisted that private bondholders in other European countries to take losses before governments wade in. “If [the chancellor] now has to squander taxpayer money again to rescue a failed bank, then she shouldn’t bother to run again,” Sahra Wagenknecht, co-leader of the Left party, said earlier this week. “It would be a total disaster.” (FT)

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