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Deutsche Bank

Deutsche Bank recovers on report of lower settlement, CEO's reassurances

Kim Hjelmgaard
USA TODAY
The headquarters of Deutsche Bank in Frankfurt, Germany.

BERLIN -- Shares in Deutsche Bank went on a wild ride Friday, tumbling over concerns about its financial health, but then reversing course after a news agency said U.S. regulators agreed to a much lower than expected settlement over mis-sold mortgage securities, and the company's CEO offered reassurances.

Deutsche Bank's stock tumbled after reports emerged that it might need a government bailout after several major hedge fund investors in the Frankfurt-based company were said to have pulled billions of dollars from the bank because of concerns over its ability to raise capital.

Asian stocks lower on renewed worries about banking sector

Fears over Deutsche's financial health stretch back to the 2008 financial crisis, when it was hit with various fines and lawsuits as regulators forced Europe's banking sector to restructure, but they were brought back into the spotlight after the United States Justice Department last week suggested the German lender may need to pay $14 billion to settle several investigations.

The rally, which came after the stock touched a record low, was prompted by an unsourced report by Agence France-Presse that the U.S. government had agreed to a settlement worth $5.4 billion. Shares rallied to close more than 6% higher in Europe and rose in the U.S. Deutsche Bank declined to comment on the report.

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Also on Friday, CEO John Cryan wrote a letter to employees saying the worries are overstated, pointing to several factors including a strong balance sheet and reserves of more than 215 billion euros ($241 billion).

"I understand if you feel concerned by the extensive coverage on this issue," Cryan wrote. "Our bank has become subject to speculation. Ongoing rumors are causing significant swings in our stock price."

If Deutsche Bank were to require a financial rescue package, the institution it may turn to first is the European Central Bank. The ECB has various tools at its disposal it can use to inject cash into troubled European banks that fall under its jurisdiction. ECB President Mario Draghi disputed claims made Wednesday by the head of Germany's BdB banking association Michael Kemmer that the central bank, which oversees lenders in the 19 countries that use the euro currency, was partly to blame for Deutsche Bank's problems because of its low interest rate policies. "No, I don't share this view," Draghi told reporters in Frankfurt on Thursday.

"German Chancellor Angela Merkel says there will be no state bailout, but this might be a case of ‘famous last words,’ as the history of banking crises often shows that major banks cannot be allowed to fail for fear of systemic risk affecting the financial system and negatively impacting the real economy," Neil MacKinnon, an analyst at VTB Capital, told the Associated Press.

Contributing: AP

Asian stocks lower on renewed worries about banking sector

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