Shares of German lender and prime Deutsche Bank were hammered once more yesterday, as the market seems committed to forcing some sort of government support for the company. The German government and the bank’s CEO John Cryan have been explicitly denying any form of government intervention or the need for such in the past weeks.
Deutsche Bank is a prime brokerage for a number of companies in the foreign exchange industry which are theoretically exposed to counter party risk.
Despite numerous statements denying that Deutsche is in need of state assistance, investors think otherwise. Overnight, during the U.S. trading session, shares of the company traded on the New York Stock Exchange (NYSE) declined 6.67 per cent, taking the company’s market cap to $16 billion.
As a reference, the firm’s current market share is less than that of embattled social media network Twitter:
Twitter ($16.4bn) is now bigger than Deutsche Bank ($15.8bn).
— Robin Wigglesworth (@RobinWigg) September 29, 2016
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According to a Bloomberg report, about 10 hedge funds have reduced their exposure to the lender. This number still represents a very small proportion of the institutional clients of the company. The list of clients as reported by Bloomberg includes firms like Millennium Partners (managing $34 billion), Rokos Capital Management ($4 billion) and Capula Investment Management ($14 billion).
Deutsche Bank’s spokesperson Michael Golden commented to Bloomberg on the matter: “Our trading clients are amongst the world’s most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress we are making with our strategy.”
The latest batch of trouble for the German lender has come after the U.S. Department of Justice levied a $14 billion fine on Deutsche Bank. Shares of the company declined close to 59 per cent over the past year and are trading near all-time lows this morning in Frankfurt.
“Excuse me sir… I see you are wearing a necktie. Would you like to come on TV and provide your opinion on Deutsche Bank?”
— StockCats (@StockCats) September 29, 2016
Pundits are all over the place debating whether the bank is going to be bailed out or not, but one notable hedge fund manager, Jeffrey Gundlach, told Reuters that investors should stay away from the stock as the market pushes the firms towards a government bailout.
Bloomberg also reports that the company has published an internal memo to its employees highlighting that it doesn’t have any liquidity issues and the clients of the company are aware that “CDS are no longer a necessarily accurate reflection of counterparty risk.” Deutsche has also highlighted that the company’s reserves are three times bigger than in 2007 and that the funding costs of the company are low despite the increase in Credit Default Swaps (CDS) spreads.
The company and its CEO John Cryan are fully committed to continue cutting costs and are challenging the decision of the U.S. Department of Justice $14 billion settlement with the company for the sale of mortgage backed securities.
At the time, a spokesperson for the company officially stated, “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”