The Deutsche Bank trial balloons are on fire today.
Moments after DB slumped on a headline that contrary to yesterday's Reuters report that the German government is holding "discreet talks" with DB, a headline hit that "there are no talks taking place with the DoJ, a German government official said"...
... a new report out of Handelsblatt announced that German companies are ready and willing to offer a "capital injection" in the low, single-digit billion euro range, according to Handelsblatt sources. More from HB:
The chief executives of several German blue-chip DAX-listed companies have discussed the state of Deutsche Bank and are even prepared to offer a capital injection if needed to rescue Germany’s largest bank from a potentially crippling penalty in the United States, according to information obtained by Handelsblatt.
Under the emergency plan, the participating companies would purchase Deutsche Bank stock to help shore up the financial institution’s modest reserves. The capital injection under discussion is in the low, single-digit billion euro range, according to Handelsblatt sources.
Both the leadership of Deutsche Bank and high-ranking members of the German government have been informed about the plan, sources said. Deutsche Bank declined to comment.
Berlin, which has refused to publicly offer financial backing to Germany’s largest financial institution, welcomed the private-sector intervention.
“Market support for Deutsche Bank is in any case better than the use of state money,” a source familiar with the discussions told Handelsblatt.
Deutsche Bank faces a fine of up to €12.5-billion ($14-billion) in the United States from the sale of mortgage-backed securities in the run-up to the 2008 financial crisis, but has only set aside €5.5 billion to cover its legal risks.
The final U.S. settlement is widely expected to be far lower. However, if Deutsche Bank does end up paying the full €12.5 billion, its capital ratio will drop below 9 percent, which is considered too low by the markets and financial regulators.
Why this report is coming out now is unclear. As we explained one week ago, DB does not need liquidity as it can access the ECB's various facilities, as for capital - why tip the hand that DB may need it if the negotiation with the DOJ has not even officially begun.
In any case, DB stock rebounded modestly on the news, although since the report suggests that DB may be even closer to getting a new, and dilutive rescue package, the kneejerk reaction may be premature.
We expect many more such trial balloons in the coming days to determine just which headlines the market has the best reaction to.