Deutsche Bank AG (USA) (NYSE:DB) was assailed by rumors that some of its hedge fund clients had taken their business elsewhere.
The US listed shares of the bank plunged 6.67% to $11.48, after plumbing a new 52-week low of $11.19.
Doubts have swirled around the German Bank’s survival after the US Justice Department slapped it with a demand notice amounting $14 billion arising from its handling of toxic mortgage-backed securities during the housing crash in 2008.
Deutsche Bank AG (USA) (NYSE:DB): Current market capitalization only $15.88 billion
Considering this valuation, the US Justice Department demand will leave nothing on the table for shareholders.
Indeed, the share price has likely reflected this imminent debacle.
The US listed shares are down 62.75% from the 52-week high and trade 32.2% below the 200 day SMA, highlighting the force of the downside momentum.
Understandably, clients having collateral deposits with Deutsche have moved to protect those monies by taking the outstanding derivative exposures elsewhere. Bloomberg named Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management as some hedge funds which took fright (and flight).
In previous instances of bank/broker failures such as Lehmann and MF Global, hedge fund monies remained frozen for years pending the resolution of tortuous legal procedures.
Deutsche Bank AG (USA) (NYSE:DB) may have to issue right shares
Though the bank has confidently stated that it would negotiate downwards the US Justice Department demand, the fact remains that a right issue could be on the cards to finance the penalty.
The possibility of a rescue by the German government remains clouded in confusion as Germany has always scoffed at the bailouts elsewhere in Europe.
However, CEO John Cryan waxed confident in a recent interview that the bank is “comfortably equipped with free liquidity,” that he sees no need for a capital raise – as he plans to sell Postbank – and a state bailout “is not an issue for us,” and that he could not understand “how someone can say that.”