Investor concerns over Deutsche Bank’s financial stability appeared to ease Wednesday after Germany’s biggest lender said it had struck a deal to sell a subsidiary and stressed it was not seeking government help.
The bank had seen its shares tumble this week as shareholders worried about its ability to handle a $14 billion legal claim from U.S. authorities.
Deutsche Bank said Wednesday it would sell its Abby Life business to Phoenix Life Holdings Ltd., both U.K.-based, for £935 million (€1.09 billion) subject to regulatory approval.
CEO John Cryan said Deutsche Asset Management, which held Abby Life, would continue to focus on its core businesses “while this transaction will also strengthen Deutsche Bank’s capital position.”
“We continue to build a simpler and better Deutsche Bank,” he said.
That helped send shares up 1.2 percent to €10.77 in midday trading following the announcement. They are down some 52 percent so far this year.
Deutsche Bank said the transaction would result in an initial expected pre-tax loss of some €800 million, mainly due to the fact that it had to write down the unit’s value.
Concerns over the bank’s health have grown after it emerged U.S. authorities were seeking $14 billion to settle legal claims over the bank’s sales of mortgage-backed securities.
Investors took huge losses on mortgage-backed securities in 2007-2008 when they turned out to be riskier than thought, helping kick off a global financial crisis. U.S. authorities are investigating Deutsche Bank’s role in selling those securities.
The prospect of a heavy fine unnerved investors as Deutsche Bank is already struggling with weak profits. Also, the losses led to speculation that the bank might need to raise additional capital, a step which can dilute current investors’ shareholding.
German Chancellor Angela Merkel refused on Tuesday to say if she’d consider stepping in over the U.S. government’s demand for a settlement. “We naturally hope, even if there are temporary difficulties, that things will develop positively,” she said.
In an interview published Wednesday with Germany’s Bild newspaper, Cryan said Deutsche Bank was not looking for any kind of a government bailout.
“That’s out of the question for us,” he said, adding that reports of talks with Merkel about supporting the bank were false.
“At no point did I ask the chancellor for support,” he said. “Neither did I suggest anything like that.”
He reiterated that Deutsche Bank did not expect it would have to pay the entire $14 billion demanded, and that he saw no need to increase capital stock, saying that the bank had “fewer risks in the books than before” and “is comfortably equipped with free liquidity.”
Finance Ministry spokesman Martin Jaeger also dismissed as false a report in Germany’s Die Zeit newspaper that the government was working on a plan to help Deutsche Bank, should an emergency situation arise.
“The German government is preparing no rescue plan for Deutsche Bank and there is no reason for such speculation,” he told reporters in Berlin.
Without citing sources, Zeit reported officials were discussing a possible government stake in the bank in a plan that would also include contributions from creditors and customers, but that the hope still is that the bank will not need help.
Jaeger refused to say under what circumstances the government might step in, or say whether there had been any meetings at the Finance Ministry this week to discuss the situation.