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The great Deutsche Bank sale begins as bailout rumours continue to swirl

Hayley Kirton
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Deutsche Bank building
The bank made a big move in restructuring its complicated business today (Source: Getty)

Deutsche Bank sold one of its less core businesses today, prompting speculation that more asset sales are on the cards at the troubled German lender as it faces the prospect of a multi-billion pound US fine.

The bank agreed to sell British insurance business Abbey Life to Phoenix, which will bring in nearly £1bn in capital. Shares rose on the news, and closed up two per cent for the day at €10.77.

Chief executive John Cryan said the sale would "strengthen Deutsche Bank’s capital position", adding: "We continue to build a simpler and better Deutsche Bank."

Deutsche Bank, which reported its first full-year loss since 2008 in its 2015 results, has been restructuring its business in a bid to help it swing back to the black.

Read more: Why is Deutsche Bank in such trouble?

"Using the asset sales at other banks like Barclays as a model, anything outside of Deutsche Bank's home turf and perhaps the US is a possibility for a spin-off," Jasper Lawler, market analyst at CMC Markets, told City A.M.

Meanwhile, Chris Beauchamp, chief market analyst at IG, told City A.M. the asset management arm was a likely option for Cryan's chopping block. However, he added the unit "provides a solid foundation of business to set against the more volatile trading divisions".

Also today, German newspaper Die Zeit reported the country's government was drawing up a contingency plan for if the bank should need saving from financial downfall and could take as much as a 25 per cent stake in the worst case scenario, although the government later denied these reports.

The news is the latest in the ongoing saga of what assistance Angela Merkel and her team would be willing to give the lender should times get any tougher.

Read more: Deutsche takes losses and raises cash to pay its bills

Over the weekend, Focus magazine reported the German Chancellor was not willing to provide the bank with state assistance, sending Deutsche Bank's share price to its lowest level since the 1980s when the market reopened on Monday.

The rumours all come at a time when Deutsche Bank is facing a record $14bn (£10.8bn) fine from the US Department of Justice for mis-selling mortgage-backed securities.

"In all honesty, I think it is a given that DB will be saved," Beauchamp said. "Its importance to the German and eurozone banking systems cannot be overstated, and letting it go would leave a large, potentially unfillable hole, in the continent’s economy."

Read more: Commerzbank and Deutsche Bank merger shot down but share prices still up

In a note covering Deutsche Bank's increasingly volatile share price, Lawler added: "Investors are right to be concerned. Deutsche Bank is the epitome of too-big-to-fail, its collapse would bring down the European banking system with it."

However, Deutsche Bank is far from the only European bank to leave shareholders in a tizzy in recent months.

For example, shares in lenders across Europe spiralled downwards this August, after the European Banking Authority stress test results revealed banks may not have been in as strong a position as investors might have hoped.

Now, a number of key figures in finance are lining up to warn that the European banking sector is in crisis mode, the latest being Credit Suisse chief Tidjane Thiam.

Read more: Deutsche Bank boss: London will be a financial hub, but not as we know it

The Financial Times reported Thiam as saying at a conference that the banking sector is in a "very fragile situation" where share prices swing drastically "on the basis of a relatively minor piece of news".

Earlier in the week former chancellor of the exchequer Lord Lamont of Lerwick said he thought "the biggest threat to Europe is the banking crisis", citing the Italian and German lenders as the riskiest of the bunch.

On Monday, Deutsche Bank hit back at claims it had approached Chancellor Merkel for help with the US fine.

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

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