German lender Deutsche Bank sounded an optimistic tone Friday, despite its shares suffering their worst day since late June following the news of a proposed $14 billion settlement by the U.S. Justice Department.
Jorg Eigendorf, head of communications and senior group director at Deutsche Bank, said that the bank had a “comfortable cushion” after the DOJ suggested that the bank pay $14 billion to settle a number of investigations related to mortgage securities. Reports state that investigations refer to the way it sold these securities before the financial crash of 2008.
Eigendorf said that it was a very high number but was confident that “we’ll be able to negotiate this number down.” Analysts have speculated that the bank might not have enough of a buffer even if the proposed settlement was halved.
“We didn’t want this number to leak out … We want these negotiations to be confidential” he told CNBC Friday.
He added that the bank was not concerned and there was “no reason to be worried right now.” Shares slid nearly 8 percent in Friday’s session after news of the suggested settlement.
Deutsche Bank said in a statement Friday that it “has no intent to settle these potential civil claims anywhere near the number cited.” The bank emphasized that negotiations have just started and that it expects the outcome to be “similar to those of peer banks which have settled at materially lower amounts.”
The company previously thought that a settlement between $2 billion and $3 billion would be fair, as it had already paid $1.9 billion in 2013 to resolve similar claims, the Wall Street Journal said. Other banks have recently paid smaller fines to settle similar violations, according to reports.
Germany wants fair result
Meanwhile, Germany’s Finance Ministry said on Friday that expected a fair result in the investigation into Deutsche Bank.
“The government is aware that the U.S. authorities have agreed similar settlement payments with other credit institutions,” Finance Ministry spokeswoman Friederike von Tiesenhausen told a regular government news conference, according to Reuters.
“The government expects that at the end of this process a fair result will be achieved on the basis of equal treatment,” she added.
Concerns over Deutsche Bank surfaced earlier in the year with investors detailing concerns over its exposure to the energy sector and a possible cash crunch.
U.S. banks have been busy rebuilding their balance sheets after the 2008 crisis but their European counterparts have been slow off the mark. Deutsche Bank came out fighting in February 2016 saying it has “sufficient” reserves to service its so-called tier 1 debts.
But these concerns have returned after the order from the Justice Department. Some banking analysts are worried that the German bank could end up defaulting on certain bonds. ABN AMRO Bank suggested that Deutsche Bank’s tier 1 coupon payments could be at “real risk”.
“Given the very precarious finances of some European banks, of which Deutsche is one of the riskiest and systemically important, it’s disturbing and appears myopic and needlessly punitive,” Neil Wilson, a markets analyst at London spread better ETX Capital said on the DOJ’s fine.
‘No immediate effect’
Credit rating agency S&P Global Ratings backed Deutsche Bank on Friday morning saying that its creditworthiness would not be immediately affected by reports that it is negotiating a settlement with the U.S. Department of Justice.
“Deutsche Bank held 5.5 billion euros ($6.2 billion) of litigation reserves on June 30, 2016, and identified a further 1.7 billion euros of unreserved contingent litigation liabilities,” the ratings agency said in statement.
“Our capital and earnings forecasts anticipate the crystallization of this contingent liability, with additional charges on top. (Our) negative outlook partly reflects our view that higher-than-expected litigation charges could lead to a downgrade if they materially erode capital.”
—Christine Wang contributed to this report.