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Germany denies 'emergency plan' to rescue Deutsche Bank

Deutsche Bank denied reports that it had asked German Chancellor Angela Merkel to help settle US demand claims worth $14 billion. Photograph: (AFP)

WION Frankfurt, Germany Sep 28, 2016, 03.38 PM (IST)

The German government denied it was preparing a rescue plan for Deutsche Bank as Germany's biggest lender faces a $12 billion fine from the US Department of Justice.

The bank boosted its balance sheet by selling its British insurance business Abbey Life to Phoenix in a $1.2 billion deal on Wednesday.

Although the sale will result in a pre-tax loss of 800 million euros ($895 mln), mainly from writedowns for Deutsche Bank, it will lift the German lender's capital ratio by 10 basis points.

The move pushed its shares to a record low on Tuesday and heightened concerns about the health of the financial sector in Europe's largest economy.

A local daily had reported that a rescue plan was being drafted in case Deutsche was unable to raise capital to pay for costly litigation.

But the German finance ministry dismissed the reports that the government would even offer to take a direct stake of 25 percent in an extreme emergency.

"This report is wrong. The German government is not preparing any rescue plan, there is no reason to speculate on such plans," the finance ministry said in a statement.

The government was still hoping Deutsche would not need state support and only scenarios for a potential rescue were being discussed so far, the newspaper added.

A Deutsche Bank spokesman referred to an interview chief executive John Cryan gave German daily Bild on Wednesday and denied the report.

"At no point did I ask the chancellor for support. Neither did I suggest anything like that," the Briton told Bild in response to a report that said he had asked Angela Merkel for her backing with a $14 billion US demand to settle claims it missold mortgage-backed securities.

On Tuesday, Andreas Dombret, the Bundesbank board member in charge of supervision said that support for Europe's oversized banking sector must stop, comparing banks to dinosaurs facing a threat of extinction.

"Political support for the banking sector must finally come to an end - something that unfortunately I've only seen to a limited extent," he had said.

Analysts at Goldman Sachs on Wednesday estimated that the US mortgages case will cost Deutsche Bank $2.8-8.1 billion. Other analysts have said that any price tag above $5 billion will likely necessitate a capital increase.

Its overall legal provisions stood at 5.5 billion euros at the end of June. However, three other large legal headaches also remain, alleged manipulation of foreign exchange rates, an investigation into suspicious equities trades in Russia and allegations of money laundering.

(WION with inputs from agencies)

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