Deutsche Bank drops on rumours over government back-stop

Deutsche Bank was under the cosh on Monday following reports suggesting that Angela Merkel had ruled out state aid for the lender, despite denials by the company and government.

Following the US Department of Justice proposal earlier this month that the German lender make a $14bn (€12.5bn) payment to settle an investigation into its sale of residential mortgage-backed securities in the years immediately before the start of the financial crisis, German magazine Focus over the weekend suggested Merkel's government had categorically ruled out a bail-out of the country's biggest bank.

But Deutsche, which said in recent weeks emphasised that negotiations are only just beginning and it has no intention to settle the DoJ claims "anywhere near" the number cited, said on Monday that chief executive John Cryan has not asked the German government at any time to intervene in the US investigation.

A German government spokesman also said there was "no reason for speculation" about state aid.

Deutsche said it was determined to solve its problems on its own, which did not erase investor worries about a large fundraising, with the bank having set aside €5.5bn for litigation.

Its shares crashed to a fresh record low below €11, also weighing on the wider European banking sector.

The rumours could not have come at worse time, said analyst Jasper Lawler at CMC Markets.

"DB has one of the worst capital positions of Europe’s 'systematically important' banks," he said. "The US regulatory fine has the potential to tip Deutsche over the edge so investors are jumping ship. The German bank’s shares are fast approaching €10. Below €10 would take Deutsche Bank into the realms of penny stocks and could see its shares offloaded en-masse."