Worries over German banks sink bond issue, rattle shares

Wed Sep 28, 2016 7:03am EDT
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By Jonathan Gould

FRANKFURT (Reuters) - Deutsche Bank (DBKGn.DE: Quote) shares hit a record low on Tuesday and state-backed lender NordLB scrapped plans for a 500 million euro ($560 million) bond sale, underlining investor concern about the health of the financial industry in Europe's largest economy.

The decision by NordLB to shelve the bond issue because of a lack of demand came a day after Deutsche, Germany's largest bank with around 100,000 employees, was forced to reassure investors it did not need government support to help meet a potential $14 billion claim from the U.S authorities.

Andreas Dombret, board member responsible for banking supervision at Germany's central bank, said politicians must let Europe's banks sort out their own problems and allow the sector to shrink to an economically sustainable size.

"Political support for the banking sector must finally come to an end -- something that unfortunately I've only seen to a limited extent," Dombret told an audience in Vienna, comparing banks to dinosaurs facing a threat of extinction.

Squeezed by the European Central Bank's low interest rates, German banks have been seeking ways to boost revenue by passing on costs to corporate customers and increasing fees for retail depositors, but profit margins remain thin in one of Europe's most competitive banking markets.

Banks such as Deutsche are also counting the cost of litigation dating back to their expansion before the financial crisis in 2007-2009. Deutsche has said it will fight the $14 billion demand from the U.S. Department of Justice.

Deutsche shares hit a record low of 10.19 euros as investors fretted over the impact of the U.S. claim but later managed to pare losses and close flat.

Traders said the stock recovered after remarks by a senior u.s. Justice Department official on the possibility of lowering mortgage-related penalties for banks if they cooperated with authorities.   Continued...

The headquarters of Germany's Deutsche Bank is photographed early evening in Frankfurt, Germany, January 26, 2016.   REUTERS/Kai Pfaffenbach/File Photo