Deutsche shares recover on hopes of reduced US misconduct fine

Speculation that Deutsche Bank (LSE: 0H7D.L - news) was on the verge of agreeing a reduced fine for alleged misconduct in the US helped its share price recover from new record lows on Friday.

The stock initially opened 8% lower amid new fears about its funding - with a potential $14bn (£10.8bn) settlement for its activities in the US before the financial crisis also looming large in investors' minds.

But shares later fought back above their opening mark to close 6% up by the close.

The AFP news agency said the shift was explained by a source who claimed the bank was near an agreement with US officials on paying just $5.4bn (£4.1bn) to settle the charges, related to its sale of toxic mortgage bonds.

The head of Deutsche had earlier moved to reassure staff and financial markets they had nothing to fear from worries the US penalty could tip the bank over the edge.

John Cryan said in a letter to staff that latest concerns surrounding the firm were unjustified and told them: "We are and remain a strong Deutsche Bank."

He said "ongoing rumours" were to blame for causing turbulence in Deutsche's stock price.

But he insisted that "at no point in the last two decades has the balance sheet of Deutsche Bank been as stable as it is today".

Worries about the lender spread to other banking stocks during the session, helping the FTSE 100 open 100 points lower.

But the London index also fought back to recover much of its early losses, as did markets in France and Germany.

The turbulent day for Deutsche followed a big sell-off on Wall Street on Thursday, when its New York-listed shares lost 7%.

That was sparked by a report that hedge fund clients had withdrawn excess cash and adjusted positions linked to the bank.

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Mr Cryan wrote to staff that the report on hedge funds had led to "unjustified concerns".

He said they should "look at the complete picture" of the bank, with its more than 20 million customers, and "extremely comfortable" cash buffer of €215bn (£185bn).

Earlier this week, the lender had sunk to a record low on fears over its funding, and the German government had been forced to deny it was preparing a rescue plan.

But in the last couple of days the shares had stabilised.

Fears over Deutsche deepened after it emerged it was facing a US fine of up to $14bn (£11bn) over its conduct during the financial crisis.

Germany's banks are, more widely, seeing profits squeezed by the European Central Bank's negative interest rate and money printing policies, which narrow the margins they can make from loans.

Deutsche is in the midst of a major shake-up including thousands of job cuts as it seeks to turn around its fortunes.

The size of the global banking giant, and its troubled state, have seen it labelled as the single biggest net contributor of risk to the global financial system by the International Monetary Fund.