FRANKFURT – Deutsche Bank shares rose 1.5 per cent on Tuesday as investors sought clarity on how big a U.S. penalty the bank will receive.
Shares in Germany’s biggest bank rose, sank and rose again to close at 11.75 euros as trading in Germany resumed after a holiday Monday. The shares have been under pressure since the bank revealed the U.S. Justice Department was seeking a $14 billion payment to settle an investigation into the bank’s dealings in bonds backed by shaky mortgages. Deutsche Bank shares rallied off record lows Friday on a media report that a lower fine was being discussed.
Low profits have also weighed on the stock, which is off 48 per cent this year. But it was speculation that the fine could push the bank to ask investors for more capital that has hurt it most recently, as raising additional capital dilutes the holdings of existing shareholders. Deutsche Bank has said it is not considering a capital increase.
Mortgage-backed securities, the investments Deutsche Bank is being investigated for in the U.S., were a key factor in sparking the 2007-2009 global financial crisis and subsequent Great Recession. Banks bundled mortgages to people with shaky credit into complex bonds that eventually resulted in heavy losses for investors, which were often other banks. In April, Goldman Sachs agreed to pay $5.1 billion to settle claims it misled bond investors, and other banks have settled similar investigations in the U.S.
Shares in Deutsche Bank and other European banks have sagged as low and sometimes negative interest rates erode profits. They are also facing tougher regulatory requirements for stronger capital buffers against losses. Germany’s Commerzbank said last week it would cut 7,300 jobs as part of a restructuring and Dutch Bank ING said it would drop 7,000 jobs in Belgium and the Netherlands. Italy’s banks are struggling with too many bad loans that aren’t being paid back.