The View | Deutsche Bank’s plight deserves a degree of sympathy
Banks live and die by their reputation, and a high-profile case like this will clearly take its toll
I kind of feel sorry for Deutsche Bank. Yes, you read that right, even though sympathising with big banks is a distinctly minority pastime, there comes a time to acknowledge that even banks can get a raw deal.
Much, but not all of this bank’s current problems stem from a US$14bn demand from the US Department of Justice in settlement of claims over Deutsche’s misselling of residential mortgage-backed securities in the lead-up to the 2008 financial crisis.
Unlike US banks, the German bank is not enjoying the luxury of having this claim settled in private and this helps explain why its shares have slumped to a two decade low.
Much of this decline is understandable as Deutsche has other problems, but hedge funds have been playing a major role in fueling the sell-off.
They are keen to lower the bank’s share price so that they can buy back the shares at bargain basement prices and cover their short positions. In case you missed it, the reason the good Lord invented hedge funds was to make bankers look good. Yet again they are performing this role with aplomb.
In another time Deutsche could have expected more vigorous support for its plight from the German government but timing is not on the bank’s side
It remains to be seen whether Deutsche will actually have to cough up the full $14bn but if it does so it will be the second biggest ever payment of this kind, topped only by a $16.7bn Bank of America settlement.