How we got here, and where we are

Shares of Deutsche Bank hit record highs this week on growing concerns about the struggling German lender, and fell again on Thursday.

On Thursday, a Bloomberg report raised concerns that a handful of funds are less willing to do business with the troubled company. The report, citing a source and a review of an internal document, says a small number of hedge funds that do derivatives business with the German bank have reduced their exposure.

US-traded Deutsche Bank shares fell after the report and were on course to close at a record high.

It’s been a tough two weeks for Deutsche Bank: the German lender has been hit with billions in fines by the US Department of Justice – although most market watchers expect the full penalty issued by the United States is likely to be reduced – and there are also reports that the German government will not help the troubled bank.

Since peaking in July 2015, shares have fallen more than 65% and the stock has wiped out more than half of its market value, dropping from nearly $50 billion to around $16 billion this week. Meanwhile, net revenues fell nearly 21% in the first half of this year compared to a year ago, according to the company’s interim report.

A major concern for global markets about Deutsche Bank is its deep ties to global financial institutions, prompting some investors to fear a larger banking crisis, although analysts continue to indicate the situation is far from over. be so serious.

Here are the key points of the accelerating crisis over the past 18 months:

June 2015 — John Cryan, former CFO of UBS, is appointed co-CEO.

October 2015 – Cryan announces details of a restructuring program called Strategy 2020 which includes a suspension of common stock dividends, job cuts and exits from 10 countries.

Source: FactSet

June 2016 — The International Monetary Fund releases a report stating that Deutsche Bank “appears to be the largest net contributor to systemic risk in the global banking system.”

Deutsche Bank contagion effect on global systemically important banks

Source: IMF. Staff calculations based on Diebold and Yilmaz (2014) methodology and daily stock returns from October 11, 2007 through February 26, 2016. Groupe BPCE and Agricultural Bank of China (ABC) are not included due to lack of public transaction data and small sample size.

July 2016 – S&P Global Ratings downgrades its outlook on Deutsche Bank to negative, citing challenges management faces in implementing its restructuring strategy, while affirming a “BBB+/A-2” credit rating.

June/July 2016 — Deutsche Bank’s US unit again fails the US Federal Reserve’s stress test, but narrowly passes the European banks’ stress test.

However, Credit Suisse analyst Jon Peace said in a September 16 report that Deutsche Bank’s Common Equity Tier 1 ratio, a measure of a bank’s financial strength, is below the minimum requirement of 12 .25% from the European Central Bank and management’s target of at least 12.5. percent.

Capital ratio to regulatory requirements (as of second quarter 2016)

Source: Credit Suisse, company data

August 2016 — Deutsche Bank and Credit Suisse are removed from Europe’s leading STOXX Europe 50 index due to sharp declines in the market value of both stocks.

September 2016 – Deutsche Bank shares hit all-time lows before rebounding 2% in New York trading on Wednesday following a report that raised hopes of a bailout for the bank in difficulty. But Cryan and the German government say they are not working together on a state aid plan, according to other reports.

Where are things now

Analysts also do not expect government support to come at this stage, or even be needed. If Deutsche Bank can negotiate its $14 billion settlement with the Justice Department down to an estimated figure of less than $5 billion, it could buy time for its restructuring attempt.

Fitch said last week that he expects the final settlement with the department to be much lower and “much more in line with the terms the bank has already set aside.”

“There are no rating implications at this stage, but if the size of the final settlement turns out to be materially greater than the provisions made, this could result in a negative rating action,” Fitch analysts said. .

Deutsche Bank is also trying to sell assets in an effort to raise capital. On Wednesday, the bank said it would sell its UK insurance business Abbey Life to Phoenix Group for 935 million pounds ($1.2 billion).

“It’s not Lehman, it’s not 2011 with Greece and some of the other euro issues. We’ve had a lot of cleanup since then,” said Rebecca Patterson, managing director and chief investment officer at Bessemer Trust, at a Bloomberg Conference on Wednesday.

IMF Managing Director Christine Lagarde told CNBC on Wednesday that she does not see Deutsche Bank “at a stage where state intervention is absolutely necessary at this time.”

—CNBC’s Jeff Cox contributed to this report.

Correction: This story has been edited to correct that Deutsche Bank’s share price peaked in July 2015.

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