Deutsche Bank shares recover on support from clients, rivals

October 4, 2016 9:30 AM EDT

A Deutsche Bank logo adorns a wall at the company's headquarters in Frankfurt, Germany June 9, 2015. REUTERS/Ralph Orlowski/File Photo


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By Arno Schuetze and Kathrin Jones

FRANKFURT (Reuters) - Shares in Deutsche Bank rose on Tuesday after major clients and even rivals voiced support for the lender, fearing contagion after concern over its future last week sent the stock to a record low.

Germany's largest bank has been engulfed by a crisis of confidence after the U.S. Department of Justice (DOJ) last month demanded up to $14 billion to settle claims that Deutsche missold U.S. mortgage-backed securities before the financial crisis.

The German bank is trying to reach a settlement before next month's U.S. presidential election.

Chief Executive John Cryan and finance head Marcus Schenck are currently travelling to the United States to meet clients and staff and to attend the annual conference of the International Monetary Fund.

A person close to the bank said that it would be a surprise if Cryan did not take the chance to meet regulators over Deutsche's legal cases.

A media report late on Friday that Deutsche and the DOJ were close to agreeing a much lower penalty of $5.4 billion lifted the stock 6 percent, but that report remains unconfirmed.

Deutsche's Frankfurt-listed shares closed up another 1.5 percent on Tuesday. They spiked higher in U.S. trade after German markets newsletter Platow Brief said the bank is hoping for a settlement of $4-5 billion by the end of October.

Deutsche Bank is considering scrapping bonuses and raising fresh capital, Platow Brief added, without citing sources.

German Finance Minister Wolfgang Schaeuble is also scheduled to attend the IMF meeting, but a finance ministry source denied speculation that he would meet the DOJ.

"He is not going to Washington to talk about Deutsche Bank,” the source said. "This is a matter between the bank and the U.S. authorities. We are not going to be heavy-handed about it.”

The German government has denied reports it has a rescue plan for the bank.

German business leaders from companies including BASF , Daimler , E.ON , RWE and Siemens have been lining up to defend the bank in the German press.

Separately, JP Morgan (NYSE: JPM) Chief Executive Jamie Dimon said late on Monday that he saw no reason that Deutsche Bank should not get over its problems.

While Dimon's remarks lent some calm to the market, they showed his concerns about potential contagion in the banking industry, market analyst Heino Ruland at Ruland Research said.

Analysts at HSBC said that despite Deutsche's operational shortcomings fears over the bank's solvency were overdone.

"Deutsche Bank should be well-equipped to deal with this short-term lack of confidence as it has: strong liquidity, solid funding and 60 percent level 3 assets to tangible equity," HSBC said in a note to clients reducing its target price to 12 euros from 14 but keeping its "hold" recommendation.

The number of shares in Deutsche Bank out on loan to hedge funds and others to either hedge against or profit from a further fall in the price hit a more than one-year high of 5.6 percent on Monday, according to data provider Markit.

(Additional reporting by Noah Barkin; editing by Giles Elgood)



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