The German government has denied it is considering injecting billions of euros into beleaguered Deutsche Bank, following reports from a German newspaper it was preparing an emergency rescue package.
Just hours after insisting there would be no state-backed bailout of the bank, German newspaper Die Welt has revealed the government is undertaking contingency planning to assess how it could step in to save the bank from financial collapse - an event which could trigger shockwaves through Europe's financial system and wreak more havoc than the demise of Lehman Brothers in 2008, analysts have warned.
The newspaper said the government hopes it will not be called upon, though it is undertaking rescue planning in the event it is needed. Under the "worst case scenario", the government could take a 25 per cent stake in the bank, if the lender is unable to raise funds from the private sector.
However, the German finance ministry issued a robust denial of the claims. A spokesperson said: "The German government is not preparing a rescue plan, and there is no reason for such speculations."
Deutsche Bank's share price has crashed to fresh record lows this week, and its market capitalisation has shrunk to a paltry £15bn, raising speculation the bank will be forced into a rights issue to raise cash.
Assuming it paid the current going rate, a 25 per cent stake would set Germany back less than €4bn (£3.5bn). The UK's 2008 rescue of RBS, in which it took a controlling stake in the business, cost the government £45bn in total.
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The reports indicated state assistance could come in two phases, with a bailout considered the most extreme. Initial plans are focusing on whether the government can help Deutsche Bank spin off parts of its business to shore up its cash reserves, with the government potentially providing some kind of guarantees to ensure buyers do not incur hefty losses.
Shares in the bank are up 2.5 per cent this morning to €10.82 on the news although the lender has also downplayed the idea it is tapping up Angela Merkel for bailout help.