Deutsche Bank fails to reach deal over $14bn fine

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Deutsche Bank failed to reach a deal with US authorities over a multi-billion dollar fine this past weekend, leading its shares to fall more than 3 per cent on the news on Monday morning before recovering this afternoon.

The lender has been under intense pressure after being ordered to pay a $14bn settlement deal following a US Department of Justice probe into mis-selling of billions of dollars of mortgage-backed securities.

Markets have been awash with speculation that the firm is unable to pay the fine using its existing capital reserves, sending Deutsche shares plummeting to a 20-year low.

Reports also emerged on Monday that Deutsche Bank was given “special treatment” in the European Banking Authority (EBA) and European Central Bank’s (ECB) latest stress tests, which are designed to model how banks would cope with future potential crisis scenarios.

The Financial Times reported that the European authorities gave “a special concession” to the bank, allowing it to include the $4bn (£3.2bn) proceeds from a stake sale in Chinese bank Hua Xia in its results, despite not having completed the sale.

It was part of around 20 “one-offs” approved by EU authorities before the December 2015 cut-off, to adjust for planned transactions, expenses, or events over the following months.

S&P Global Ratings has maintained its negative outlook for Deutsche Bank, saying that the German lender will likely have to pay more than it has accounted for, but should be able to absorb the costs.

The ratings agency projects that aggregate litigation charges will exceed the €5.5bn (£4.9bn) provisions and the €1.7bn (£1.5bn) contingent liability that the bank reported at the end of June.

“We remain of the view that Deutsche Bank’s main challenge is the restructuring of its business model to achieve stronger earnings and capital, and we believe recent market volatility surrounding the bank may complicate the achievement of this goal.”

Additional reporting by AP