Why it's been a very bad year to be Deutsche Bank

Hayley Kirton
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Deutsche Bank logo on flags
From falling into the red to a $14bn fine, here's what's gone wrong for Deutsche Bank this year (Source: Getty)

Deutsche Bank shares plunged to a new record low today, dropping 7.5 per cent to close at €10.55, prompted by reports in Focus magazine over the weekend that German Chancellor Angela Merkel has ruled out state assistance for the bank.

However, this is far from the first piece of bad news to have hit the bank in recent times, and shares have lost over half their value over the course of the last 12 months. The bank's market capitalisation has sunk to a rather sorry €15bn and has shrunk at such a pace that it was booted off of the Eurostoxx 50 at the start of last month.

Incredibly, the bank's low market cap now means it is valued less than startups like Airbnb and Snapchat.

The writing was on the wall as early as January, when the lender unveiled its first annual loss since 2008. By turning a loss of €6.8bn, it was even more in the red than analysts had initially feared.

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The bank's constant battles with legal costs, which have played a key role in hampering profitability over the years, were thrust front and centre earlier this month. Even though announcements of regulatory fines have become an almost daily occurrence for the banking sector in the aftermath of the financial crisis, the sheer size of the recent threat from the US Department of Justice to slap the German lender with a $14bn penalty for mis-selling mortgage-backed securities still shocked the markets.

"DB has one of the worst capital positions of Europe's 'systematically important' banks," added Jasper Lawler, market analyst at CMC Markets. "The US regulatory fine has the potential to tip Deutsche over the edge so investors are jumping ship."

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Deutsche Bank has already alarmed shareholders over its capital state when it performed poorly in the European Banking Authority’s stress tests in July and was one of two banks to fail the US stress tests a month earlier.

However, Deutsche Bank does not exist in a bubble and it's been far from plain sailing for the banking industry at wide in recent months. The Euro STOXX Europe 600 Banking index fell 2.3 per cent today, prompted by fresh fears that Donald Trump could be crowned the next president of the United States in November along with reports of City concerns that the UK could be headed towards a so-called hard Brexit.

In the longer-term, banks have also been struggling with the lower-for-longer interest rate environment which has squeezed profits and forced many to slash costs down to the bone.

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"You only need to look at net interest margins in the European Union compared to the US to see there's still a structural headwind in the sector and that Deutsche's at the forefront because it's still got capital it's got to raise," remarked Simon French, chief economist at Panmure Gordon.

However, Deutsche Bank hit back with a spokesperson today slamming claims the lender had asked the German Chancellor to intervene over the US Department of Justice fine.

"This question is not on our agenda: Deutsche Bank is determined to meet the challenges on its own," the spokesperson continued. "The question of a capital increase is currently not on the agenda, we comply with all capital requirements."