Deutsche Bank saw a fourth quarter loss of 1.9bn euros, affected by $7.2bn it agreed to pay in fines and compensation in the US over the mortgage-backed securities crisis of 2008Deutsche Bank saw a fourth quarter loss of 1.9bn euros, affected by $7.2bn it agreed to pay in fines and compensation in the US over the mortgage-backed securities crisis of 2008 (AFP Photo/DANIEL ROLAND)
New York (AFP) - Heavy market pressure on Deutsche Bank eased Friday as a knowledgeable source told AFP the US fine over toxic debt it sold would be only $5.4 billion, not the $14 billion originally demanded.
A person familiar with the talks between Deutsche Bank and the 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 ebbed.
US-traded shares of the bank finished up 14 percent at $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 finance ministry.
But worries about the impact of the case on Deutsche Bank had spread through markets and into the political realm over the past week, unnerving investors.
Adding to the rising concerns were conflicting reports in German media on whether Berlin would come to the troubled bank's aid if necessary.
-'No basis for speculation'-
Then late Thursday the bank's US-traded shares plunged on news that a number of hedge funds that clear derivatives business through Deutsche Bank had pulled out money.
The shares also tumbled as the Frankfurt stock market opened Friday, falling by more than nine percent at one point, hitting a historic low of 9.90 euros.
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 managed to lift the mood with a letter to staff Friday insisting the bank was not at risk.
"At no time in the last two decades has Deutsche Bank been as safe as it is today," Cryan wrote.
"In a situation like this, the most important factor is our liquidity reserves. Currently they still amount to more than 215 billion euros ($241.7 billion)," he said.
"This is an extremely comfortable buffer. This is clear proof of how conservatively we have planned."
"There is therefore no basis for this speculation," he added. "Nor can uncertainty about the outcome of our litigation cases in the US explain this pressure on our stock price, if we take the settlements of our peers as a benchmark."
- Bailout less likely -
The bank has suffered for months from perceptions of a weak capital base. In June it flunked the US Federal Reserve's 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 $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 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.