This Is The Rumor Causing The Spike In Deutsche Bank Shares

In the past few hours, DB stock has staged a dramatic rebound, surging from its overnight -9% lows, to green on the day. What is causing it: after all, aside from a trivial "Dick Fuld-esque" letter by John Cryan to his employees blaming speculators for the plunge, there has been no actual news.

The catalyst for the spike is again a rumor.  As Bloomberg writes, "there has been trader unsubstantiated speculation - launched on Twitter - that the bank may reach a lower RMBS settlement with the U.S. DoJ than feared."

"unverified handles on Twitter speculate the DoJ fine may be $5.4b, vs reports earlier this month the DoJ had sought $14b. Unverified handles including @fiatcurrency, @Fxmacro Tweet or retweet the speculation."

The rumor got extra significance after some traders repeated and "justified it" in the process, to wit: "Deutsche Bank stock is being helped by speculation the DoJ settlement could be lower than feared," Sylvain Loganadin, market analyst at FXCM, told Bloomberg by phone. “People don’t want to stay short on Deutsche Bank going into the weekend in case there’s a statement”: Loganadin

Putting the rumored $5.4 billion number in context, earlier today JPM said that there is a possibility that "DB settles US RMBS at an amount inline with our expected level of $3-4bn leading to no capital raise" however it admitted that another alternative is that "the DOJ demands significantly more than c$4bn which DB would be reluctant to accept in ourview as it would otherwise trigger a capital raise."

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The catalyst for the rumor is a phone conversation held earlier today between the US president and German chancellor although as Bloomberg reported just before 6am, President Barack Obama and German Chancellor Angela Merkel didn’t discuss U.S. Justice Department’s case against Deutsche Bank AG during phone call, according to German government spokeswoman Ulrike Demmer.

Adding some color to potential regulatory intervention, Bloomberg also noted that when asked about concerns over Deutsche Bank, chairman of the White House Council of Economic Advisers Jason Furman says Obama administration is monitoring banking system daily. 

Furman, speaking at a Bloomberg breakfast in Washington, says Europe made less progress than U.S. in protecting banks. “They’ve made less progress in terms of increasing capital for their financial institutions, less progress in putting in place some of the mechanisms we have for resolving them,” Furman says about Europe.

However, he adds that “there are a lot of mechanisms both within Europe and within the U.S.” to protect the financial system, Furman says.

It was not clear if that included bailouts.

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Naturally, Deutsche Bank has refused to comment on speculation around the level of the DoJ fine.

Which means that should the DOJ make no announcement on Sunday, any buying spree today in DB may promptly turn into another selloff. Making matters worse, with German trading closed for holiday on Monday, only the far more illiquid US tracking stock will be open, which may accentuate any potential selling.

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As a reminder, there were "fixes" galore in 2008 and rumors sent Lehman stock soaring over 10% in at least 6 weeks during the last few months...