Deutsche Bank Hits Record Low on New Worry Over Danske Role

(Bloomberg) -- Investors in Deutsche Bank AG have added the lender’s role in Danske Bank’s money laundering scandal to their growing list of worries.

A management shakeup, weak earnings and political turmoil in Italy and Turkey saw Deutsche Bank shares hit multiple lows this year. Now, concerns about its involvement in Europe’s biggest money-laundering scandal are weighing on the stock after the key whistle-blower pointed a finger at the bank. German supervisor BaFin is also seeking more information on its relationship with Danske, a person briefed on the matter said Tuesday.

“In the current environment, the slightest negative news is enough to make people leave risky assets, especially regarding sensitive topics like money laundering,” said Andreas Meyer, portfolio manager at Aramea Asset Management AG.

Danske Bank A/S whistle-blower Howard Wilkinson, who stunned Danish lawmakers Monday by saying he was offered hush money by the bank, estimated that $150 billion in suspect funds it handled was funneled through a lender that he didn’t name. It was later identified by a person familiar with the matter as Deutsche Bank’s U.S. unit.

An internal review conducted by Deutsche Bank came up with a similar, provisional figure for flows over the course of about nine years, a person briefed on the matter said. Deutsche Bank moves about $450 billion to $500 billion per day as a correspondent bank, the person said. Germany’s biggest bank processed payments for Danske Bank in Estonia, but ended the relationship in 2015 after it found suspicious activity, the lender said.

“We are neither aware of any investigation by BaFin nor have we received any formal requests for information,” a spokesman for Deutsche Bank said in an emailed statement.

Deutsche bank dropped as much as 6 percent in Frankfurt to 8.05 euros, the lowest in records compiled by Bloomberg, before closing at 8.15 euros. The stock has lost almost half its value this year.

Deutsche Bank’s 1.75 billion-euro ($2 billion) 6 percent perpetual notes slumped 2.3 euro cents to about 89.5 in the biggest one-day decline since May, data compiled by Bloomberg show.

Bank stocks were the second weakest sector in Europe Tuesday, led by declines in CYBG Plc and Julius Baer Group Ltd. Shares of Deutsche Bank’s asset-management unit, DWS Group GmbH & Co., dropped 2.3 percent.

Danske isn’t the only one of Deutsche Bank’s relationships under examination. Its lending to U.S. President Donald Trump is likely to be a focus of scrutiny for Democrats now that they’re set to take control of the House and have more power to launch investigations, Representative Maxine Waters pledged last week. She’s in line to take over the House’s financial services committee.

Analysts at Goldman Sachs Group Inc. updated their estimates for Deutsche Bank to incorporate third-quarter results. On average, the brokers cut the estimate for earnings per share for 2019 through 2022 by 6 percent and lowered the price target to 11 euros.

Meanwhile, the bank’s effort to use excess liquidity to reduce interest payments may only achieve marginal results. The bank said Monday that it’s offering to buy back 1 billion euros of older, costlier debt. Barclays’s Amit Goel noted that the tender offer may have a small pretax profit impact of about 63 million euros.

“It is a nice sign regarding their asset liability management, but nothing more,” said Aramea’s Meyer, who invests in Deutsche Bank subordinated bonds.

--With assistance from Hannah Benjamin.

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, ;Celeste Perri at cperri@bloomberg.net, Christian Baumgaertel, Paul Armstrong

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